Philip W. Boyko Commercial Law Blog on Lawyers.com

Your business has not received payment from a debtor corporation (the "corporation")for services rendered or goods delivered by your company.  As you turn the claim over to your attorney for collection, who do you sue?  The corporation for sure as your company's invoice is clearly addressed to the corporation/buyer.  Unfortunately, you never had any of the officers or directors sign a guaranty of the debt, so you think you will not be able to sue them. Any hope you had of subjecting their personal assets to liability is gone, or is it?  One thing your attorney should always due is determine if the corporation has had its charter forfeited.  This is done in Texas by checking with the Comptroller of Public Accounts (the "Comptroller").  Even if the charter was recently reinstated, this is important.  Let me explain.

The general rule is that officers and directors of corporations are not personally liable for the debts of the corporation, absent some independent basis for such liability, such as agreeing to guaranty the debt.  However, the Texas Tax Code (Sections 171.252 and 171.255) creates liability where none may have otherwise existed.  Those sections provide that each director and officer of the corporation whose right to do business in the State of Texas is forfeited will be held liable for any debt of the corporation incurred or created in Texas after the date when the report, tax or penalty is due.  The liability accrues as if the officers and directors were partners.  The liability shield of the corporation that would otherwise protect the officers and directors disappears with the forfeiture of the corporate charter! 

An example will show how this works.  Your company receives an order from ABC Corp. on February 1, 2011 for 500  widgets.  Unbeknownst to you (and probably unbeknownst to the officers and directors of ABC Corp. too) the corporate charter of ABC Corp. was forfeited on January 1, 2011 and remained in forfeited status until March 1, 2011, when it was reinstated.  ABC Corp. fails to pay for the widgets.  You turn the claim over to your attorney who discovers the forfeiture.  Your suit should not only name ABC Corp as a defendant, but also the officers and directors of ABC Corp.  In the pleadings that I prepare, I generally devote an entire page to detailing the facts of the forfeiture of the corporate charter, the pertinent language of the Texas Tax Code, and why the officers and directors are now liable for the debt of ABC Corp.  The personal assets of the officers and directors will now be subjected to liability for the corporate debt if your company prevails on its claim.  Even if those officers and directors consider themselves to be "judgment proof,"  chances are that you have additional leverage in getting your company's claim paid as most officers and directors are not going to want a judgment entered against them in their individual capacity.

One additional note.  Prior to filing suit, send a letter to the Comptroller of Public Accounts, Attn: Open Records, P.O. Box 13528, Austin, TX 78711 - Fax No. 512/475-1610, requesting the certified corporate history for ABC Corp., specifically asking for:

• documentation re the corporation's failure to file franchise tax reports and/or pay franchise taxes, including the dates that the reports and/or taxes became due;
• documentation re the corporation's status and whether or not the corporation's corporate privileges have been revoked, and/or its charter revoked; and
• certified documentation showing the officers/directors of the corporation from ______________ to the present.

You can be sure that if nothing else, you will get the attention of the officers and directors who you personally serve with citation in the lawsuit.  They will immediately be on the telephone to the attorney for ABC Corp., with their first question being, "Can I be held personally liable for the debt?"  The answer is a clear "yes."

Nothing in this post should be considered legal advice.  Let's face it, you don't know me and I don't know you.  My aim is simple, to provide the reader with some useful, but general, information about the topic.  For a legal opinion that has teeth, consult your personal lawyer about your specific facts and circumstances.  If you don't have a lawyer and like what you see here, then perhaps you should contact my office to see if we would be a good fit.  To do so, simply click on my name above and you will be directed to my website, or you can reach me now by telephone at (713) 626-2221.  Regardless of how you contact me, kindly refer to this Blog No. 39.