Generally, when individuals decide to start a business, one of the first task to complete is to incorporate the business and determine what type of business entity is best for their company. These type of entities can include partnerships, S-Corporations, C-Corporations, and limited liability companies. Each of these types of business entities provide certain pros and cons, many of which are tax related. However, one of the most significant reasons for incorporating a business is to insulate owners, members, shareholders, and directors from personal liability in the event the business is sued.
Generally, when individuals decide to start a business, one of the first task to complete is to incorporate the business and determine what type of business entity is best for their company. These type of entities can include partnerships, S-Corporations, C-Corporations, and limited liability companies. Each of these types of business entities provide certain pros and cons, many of which are tax related. However, one of the most significant reasons for incorporating a business is to insulate owners, members, shareholders, and directors from personal liability in the event the business is sued.
Courts in New Jersey have stated, “[t]he rule of law that has evolved in New Jersey is that the corporate form as a wholly distinct and separate entity will be upheld.” Coppa v. Taxation Div. Director, 8 N.J. Tax 236, 246 (Tax Ct. 1986). Thus, “a primary reason for incorporation is the insulation of shareholders from the liabilities of the corporate enterprise.” State Dep’t of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 500 (1983). Thus, it is generally difficult to sue the owners of an incorporated business the without significant reasons.
Piercing the Corporate Veil
“Piercing the corporate veil” generally allows a Plaintiff to set aside the limited liability associated with business entity and permit a plaintiff to seek damages directly against the owners of the company. While the law differs in each jurisdiction, generally courts maintain a strong presumption against piercing the veil, and will only allow such a claim for significant malfeasance and misconduct by the owner of such business. “Cases that pierce the corporate veil creating exceptions to the general rule are generally aimed at corporate officers who, in fact, have a practical and realistic opportunity to avoid injurious consequences of corporate conduct in areas of public health and safety.” Macysyn v. Hensler, 329 N.J. Super. 476, 486 (App. Div. 2000). The court in Macysyn v. Hensler stated:
In construing that language, this court has held that ‘there must be a showing that a corporate officer had actual responsibility for the condition resulting in the violation or was in a position to prevent the occurrence of the violation but failed to do so.... [The officer must have been] in control of the events that result in the violation.’Id. at 487.
In the personal injury context, courts will look to determine if the owner sufficiently participated in the commission of an intentional tort. In New Jersey, this is known as the “participation theory.”
The Participation Theory
“Under the participation theory, an individual is personally liable for all torts he or she commits, even though the person is acting in his or her official capacity as an officer or agent of a corporation; and it is of no consequence that the corporation may also be liable.” Breglia v. Norman & Luba, LLC, 2005 WL 3338295, at *6 (N.J. Super. App. Div. Dec. 9, 2005); see also Saltiel v. GSI Consultants, Inc., 788 A.2d 268, 272 (N.J. 2002)(the “essence of the participation theory is that a corporate officer can be held personally liable for a tort committed by the corporation when he or she is sufficiently involved in the commission of the tort.”); see also Reliance Ins. Co. v. The Lott Group, Inc., 851 A.2d 766, 777 (N.J. Super. App. Div. 2004)(“The participation theory holds a corporate officer or director personally liable for his participation in the corporation's wrongdoing, even if he derived no personal benefit.”)
“In such cases, personal liability for the torts of officers does not depend on the same grounds as piercing the corporate veil, i.e. inadequate capitalization, use of the corporate form for fraudulent purposes, or failure to comply with the formalities of corporate organization.” Breglia, 2005 WL 3338295, at *6 (citing N.J. Dep't of Envtl. Prot. v. Gloucester Envtl. Mgmt. Servs., Inc., 800 F.Supp. 1210, 1219–20 (D.N.J.1992). “New Jersey cases that have applied the participation theory to hold corporate officers personally responsible for their tortious conduct generally have involved intentional torts.” Saltiel, 788 A.2d at 272.
In order to maintain a claim against the owner of a business, the evidence must be proven by clear-and-convincing evidentiary standard. Saltiel v. GSI Consultants, 170 N.J. 297, 304 (2002).
Conclusion
Thus, it is possible to hold a company owner liable for your personal injuries, but the owner must have sufficiently participated in the creation of the injury. At Scura, Wigfield, Heyer, Stevens & Cammarota, our office has been successful in these difficult arguments. Please give our law firm a call for a free consultation to discuss your unique case.
