Here’s a sad story: a few years ago, one of our current clients invested a few hundred thousand dollars in a friend’s company, purely as an investment. He allowed himself to be listed as an officer, and had a seat on the Board of Directors. He also cosigned for an SBA loan
You can guess what happened next: the company is now insolvent, and lawsuits are being filed all over the place. The underlying “investment contracts” which define our client’s liability, are unclear or overreaching in various respects.
To make matters worse, the owner/President failed to deposit payroll taxes with the IRS. Result: the IRS is now naming all directors and officers as “potentially responsible persons” to be personally responsible for those payroll taxes.
We think we can get our client out of this, but it is by no means certain. And, the legal fees and costs to accomplish that will by themselves be a significant expense.
Is it possible to make such an investment which avoids you ever being named as a “potentially responsible person” for obligations you had nothing to do with, and no control over?
Yes, it’s possible. But it requires very carefully-drafted agreements.
So, if you are approached about the possibility of making such an investment, consult an experienced business-law attorney who can help you avoid the traps and pitfalls in such an arrangement.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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