Am I liable as a 5% shareholder?

[TreyAllDay]

Hello All,

I'm curious - what are the liabilities of being a shareholder in an organization? There seems to be conflicting advice online. A friend of mine who I was helping to get a business started randomly said one day, "You're going to be a 5% shareholder!". I didn't address it at the time or even make comments, brushed it off, as I didn't know when he was going to incorporate immediately, however I received a text this morning saying - "I've incorporated, you're a 5% shareholder!".

So I'm curious - is there any chance whatsoever of liabilities for being listed as a 5% shareholder on incorporation documents?

 

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[Merging Left]

My first thought is that no, you are not liable. People who own stock in companies are not liable for the activities of the companies, right?

Further, you're not an officer in the company and have absolutely no control over the decisions of the company, correct?

Still, talk to a lawyer.

 

[AF77]

My first thought is that no, you are not liable. People who own stock in companies are not liable for the activities of the companies, right?

Further, you're not an officer in the company and have absolutely no control over the decisions of the company, correct?

Still, talk to a lawyer.

Not an officer is the key there.

 

[Rabby]

If you're an employee or board member the company's general liability insurance will cover you just like it covers the company - for example if someone slips and falls, or if your product harms someone. So that's just a matter of having appropriate limits.

If you're a director or officer, you can cover your risk for suits regarding the governance of the organization using Directors and Officer's liability insurance. Likewise, if you are acting in a professional capacity (financial services, engineering, etc), you can get coverage under Errors and Omissions insurance.

Whether you can realistically be held liable depends on your position with the company. If there's any chance of being named in a lawsuit and needing defense, you can always make sure you have the appropriate types of liability insurance in place. That will transfer your risk to an insurance company that can afford it.

 

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