Can the shareholders of an S-corporation be sued personally?

UPDATED: Oct 30, 2014

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Can the shareholders of an S-corporation be sued personally?

I am a fence contractor; I have an S-corporation. An employee nicked an electric line and now the homeowner is suing us for the cost of repair. I offered to have our electrician fix it but the homeowner chose not to wait the 2 days that our electrician needed to get to it. The lights worked without any interruption. I am a “shareholder” in the S-corporation, as is my wife. He is suing us personally. I was under the impression that shareholders are sheltered from liability and don’t know where to go from here. Does this “shelter” extend to this kind of lawsuit?

Asked on October 30, 2014 under Business Law, Colorado


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

A shareholder is not personally liable for the acts of the corporation except in a few cases, such as:

1) the shareholder personally did the act leading to liability--in which case he is sued due to his personal actions or culpability, not as a shareholder;

2) the shareholder guaranteed a debt or obligation;

3) the shareholder was the responsible person for a fiduciary tax (like sales tax) or payroll, and is being sued based on that.

From what you write, you personally--though not your S-corp--should have a good defense based on the fact that you are the wrong party to name.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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