What Liability Does a Corporation Have for Its Officers?
An officer serves as an agent of a corporation. He acts as a fiduciary and makes decisions on behalf of the corporation. The officer can bind the corporation with his acts in managing the corporation. The bylaws, which are the rules that govern the corporation, and the board of directors grant the officer express authority to manage the corporation. An officer also has implied authority to perform duties normally associated with his position.
The board of directors or an authorized officer may appoint officers to manage the corporation. Some states require particular officers, while other states do not. For example, Georgia does not require particular officers, while California requires that its corporation have at least a president, a secretary and a chief financial officer. The corporation’s bylaws and board of directors grant authority to the officers. However, particular officers perform the following duties, in general. The president conducts business and enters contracts on the corporation’s behalf. The vice president acts in the president’s prolonged absence. The secretary keeps and certifies corporate records, while the treasurer receives and keeps the corporation’s funds.
The owners, directors and officers of a corporation hold limited liability for the financial obligations of the corporation. A creditor cannot take their personal assets when the corporation owes the creditor money. Consider this example: A grocery store places a delivery order with a bakery for 10 dozen assorted baked goods. The bakery, operated as a corporation, runs short on delivery drivers, so the president hires a temporary driver from a staffing agency. The president makes sure the driver has a clean driving record. On the way to the deliver the goods, the driver collides with another vehicle, severely injuring a passenger. If the passenger brings a lawsuit, he could prevail against the corporation but not the officer. In addition, if the corporation fails to have the goods delivered to the grocery store, the corporation will be financially liable for the undelivered goods, not the president.
Under the law of respondeat superior, the corporation remains liable for the acts of its officers within the scope of the officer’s authority. Although the officer did not act with express authority, it was well within his implied authority to hire another driver. However, when an officer commits a tort or a crime, a court will hold the officer liable as well as the corporation.
If we change a few variables in the bakery example, the president could face personal liability. Consider this: Desperate for a delivery driver, the president hires the first person who applies for the position. Unbeknownst to the president, this person just got out of rehab. The president doesn’t bother to check the new driver’s background. If the new driver operates the delivery truck in an intoxicated state and injures or kills someone, a court will allow the injured party to sue and obtain a monetary judgment against the president. The president will have to pay the judgment out of his personal assets because he committed the tort of negligence by employing a driver and neglecting to check his background.