Am I liable for co-shareholders' decisions in an S corporation?

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Question:

My partner and I have formed an S corporation, with him as secretary and me as president. The landlord and my partner worked out the rent and it increased significantly with changes that my partner suggested to the builder. Now the rent will be too expensive for the business to succeed, in my opinion. The landlord has sent me a five-year lease to sign and it has a clause for us to sign to personally indemnify and guarantee all money. I do not intend to sign it. Can I be held personally responsible for the money that the landlord has paid the builder for this building -- or anything else?

Answer:

You were smart to set up your business as a corporation. Unless there is more to the story than has met your cursor, you need not worry. The whole idea of having a corporation -- or a limited liability company -- is to shield you from just this sort of personal liability for tax debts.

If you and your spendthrift cohort had a partnership and not a corporation, you could wind up being personally liable for business debts that he incurred -- although a long-term lease usually needs to be in writing to be a valid business debt, even for a partnership.

To keep this limited liability, you should, when signing leases and other contracts, make sure to add your role as president of the corporation. And don't sign an indemnity of guarantee of corporate debt unless you're sure you want to put your house, car, and collection of pet rocks at risk.

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