Regardless of whether your family business may be considering taking on debt for a much-needed expansion or whether it is facing liability from a lawsuit or other matter, one question frequently arises: As a shareholder in an Iowa corporation, can I be held personally liable for my business’ debts, liabilities, or actions? In Iowa, the “default rule” rule is stated as follows:
A purchaser from a corporation of its own shares is not liable to the corporation or its creditors with respect to the shares…
Unless otherwise provided in the articles of incorporation, a shareholder of a corporation is not personally liable for the acts or debts of the corporation.
Iowa Code § 490.622 (2013) (emphasis added). As set forth above, unless your family business corporation – incorporated in Iowa – has otherwise agreed, the default rule in Iowa is that shareholders are generally not personally liable for the corporation’s acts or debts. This “shield of liability” or “corporate veil,” as it is often called, is generally the fundamental reason that entrepreneurs and business owners alike decide to incorporate in the first place – to create liability protection, the “shield of liability.” While the provision reproduced above certainly creates legal protections and will provide comfort to many shareholders, it should be noted that as with many legal principles, instances exist in which courts will recognize the “shield of liability,” but nonetheless “pierce the corporate veil” and hold directors, officers, and others liable. To read more about piercing the corporate veil, click here.
If you have questions about whether you or someone you know may be personally liable or potentially liable for the acts, debts or other liabilities of a business, you should consider contacting a corporate dispute attorney.
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