Yes, you can be personally liable for corporate debts, if you are not careful.

When a business is failing, the members of the board of directors owe fiduciary duties to the corporation’s creditors. Thus, if the board approves the distribution of cash or assets to the shareholders, the creditors can sue the board members personally up to the amount of the distribution.

So, for example, let’s say that you have a single member S-corporation. To save the hassle of setting up payroll, and to save employment taxes, you pay yourself a “dividend” instead of a salary. If you pay that dividend instead of paying the corporation’s creditors, the creditors can sue you personally for the amounts you paid.

So, be careful, and structure it right from the beginning!

Employers with questions regarding corporate debts can contact the Browning Law Group at 949-234-6266 or [email protected]. For more information, visit Browning Law Group’s website www.BrowningLawGroup.com.