Chief executive officers (CEOs) have high-stress jobs with an enormous burden of responsibility. Sometimes the stress is compounded, such as when they’re being held personally liable for a problem threatening their company. Should this happen, they’ll need a defense attorney for lawsuits against a company.
What is Personal Liability?
Personal liability for CEOs and company directors comes into play when they are held accountable for actions and decisions that harm the company—this phenomenon is known as piercing the corporate veil.
While it doesn’t happen all that often, some corporate officers can’t resist the temptation to use the company’s assets to increase their wealth. Shareholders can also be guilty of things like theft of assets and embezzlement, which are formally investigated by the police to determine civil or criminal charges.
Chief executive officers and shareholders in a corporation are covered, provided the actions were within the scope of their roles, responsibilities, and the parameters of the law.
5 Circumstances in Which Corporate CEOs Can Face Civil or Criminal Liability
There are conditions that need to be met before corporate CEOs can face a civil lawsuit or criminal prosecution. The circumstances under which you’ll need a business litigation defense attorney are divided into five categories.
1. Personal Criminal Acts
CEOs are criminally liable for crimes committed. The fact that they’re a CEO of a corporation affords them no protection.
For example, the CEO provides thieves with access to the premises so they can commit industrial espionage.
2. Intentional or Grossly Negligent Non-Compliance
CEOs risk civil liability if they purposely act to lead the company astray. Gross negligence occurs when a CEO knows what actions are necessary to ensure compliance but fails to do so.
For example, a CEO must ensure that the company’s operations are within environmental standards but doesn’t carry out the inspections necessary to keep the business within limits.
3. Piercing Circumstances
There are civil liabilities that pierce the corporate veil. The veil is pierced when there is a commingling of personal and corporate assets and debts and when CEOs exceed their authority. Another circumstance is when there are insufficient funds to cover the company’s liability.
Evidence suggests that commingling is more common in smaller companies than in larger enterprises. The most prevalent action taken is to use corporate funds to cover personal expenses.
4. Direct Third-Party Lawsuits Against the CEO
Lawsuits are brought directly against the CEO in their personal capacity. For example, accusations of sexual harassment or racial discrimination based on the CEO’s direct action or individual capacity.
It’s good to have specialists on your case, for example, defense lawyers for executives facing sexual assault charges.
5. Corporate and Shareholder Derivative Litigation
There’s personal liability in corporate and shareholder derivative litigation. Examples include fraudulent activities against the company and mismanagement of the company’s assets.
Plaintiffs hold the CEO liable, not the company, so he isn’t covered by the directors and officers (D&O) insurance.
What CEOs Need to Do to Address the Risks Associated with their Fiduciary Duties
CEOs have fiduciary duties to their shareholders and directors. Failure to carry out these duties, either on purpose or by negligence, can result in a civil action against corporate officers.
1. Familiarize Themselves with their Fiduciary Duties
CEOs must understand and uphold their fiduciary duties and ensure that other officers, directors, and shareholders act responsibly. If CEOs know of wrongdoing and don’t report it, they could be held liable.
In this case, the business relies on its defense attorney for lawsuits against the company. CEOs must engage their own legal representation.
2. Understand the Corporation’s Director and Officer Liability Insurance
CEOs must understand the full extent of the company’s Director and Officer (D&O) liability insurance, especially as the policy pertains to what actions are covered and what is excluded.
3. Get Legal Advice from a Business Litigation Defense Attorney
It’s essential to understand the legal defenses that could keep you out of jail or save you from an enormous fine. A business litigation defense lawyer will explain things like officers’ mandatory “claw-back” obligations where the wrongdoing of some officers results in the liability of other officers.
4. Learn About the Legal Protections Available
These days there are comprehensive legal protections for those who come forth with the truth about misdeeds. That means that any wrongdoing by CEOs is likely to be reported.
How Can CEOs Minimize their Exposure to Personal Liability Lawsuits
Litigation attorneys for businesses can represent CEOs from certain allegations, but there may be instances where the CEO’s and business’s cases conflict. CEOs need their own business litigation defense lawyer to protect them in situations like this.
CEOs will benefit from engaging personal legal counsel on an in-case basis. This is especially important in risky situations, for example, financial transactions that attract federal investigators.
D&O liability insurance reduces the risk of personal liability in civil litigation, but the interests of the company come first. If CEOs act with good faith within their scope of authority, they will likely be covered by the company’s insurance.
However, if the action exceeded their scope of authority and fell out of ordinary negligence, the company’s insurance won’t apply.
Can a Business Litigation Defense Attorney Defend CEOs Against a Lawsuit?
A business litigation defense attorney can defend CEOs, but it’s better to reduce risk in the first place. If you are armed with knowledge then you won’t be blindsided by allegations that don’t make sense. You can also make informed decisions for yourself and your company, which further reduces risk.
A business defense attorney shares all relevant information (such as labor law and RICO business litigation) with you and shows you where you can obtain even more information. Your business defense attorney’s services should include:
- Business bankruptcy
- Business litigation
- Business contract disputes
- Partnership disputes
Consult a Business Litigation Defense Attorney from LibertyBell Law Group
LibertyBell Law Group provides a range of services that all business owners need. Our knowledge of the California civil code and laws governing business operations means you can act within the ambit of the law and still drive your business forward.
Our lawyers are on your side, doing everything possible to get you out of potentially excessively priced lawsuits and defend you against potential criminal prosecution.
We will always have your back, so contact us today for a free consultation with a business litigation defense attorney. Complete our onsite contact form or call us at 866-320-4854 at LibertyBell Law Group!