The criteria governing when corporate officers may be held directly liable for torts committed in the course of a company’s business varies widely from state to state. For example, Delaware corporate law states:

• “No suit shall be brought against any officer, director or stockholder for any debt of a corporation of which such person is an officer, director or stockholder, until judgment be obtained therefore against the corporation and execution thereon returned unsatisfied.”

Compare this to Nevada law, which allows a suit directly against a corporate officer or director if the corporation is their alter ego, even if a judgment against the corporation has not yet been awarded:

• “Except as otherwise provided by specific statute, no stockholder, director or officer of a corporation is individually liable for a debt or liability of the corporation, unless the stockholder, director or officer acts as the alter ego of the corporation.”

Now compare the previous two statutes to California law, which allows a claim to proceed against a corporate director, if the plaintiff alleges the director acted in bad faith (however the director will only be liable for corporate debts if he did indeed act in bad faith as a director.)

Unfortunately, except in the case of Delaware, in almost all states it is possible for a plaintiff to, at least initially, bring suit against a corporate director or officer as well as the corporation itself. This is an extremely common litigation tactic, and is used as a means to pressure the corporation’s principals into a settlement.

After all, it’s one thing to drag business activities through the discovery process, and quite another to subject one’s personal conduct to discovery, which depending on the facts of the case may be quite embarrassing. Such a tactic is also used against the managing members or general (managing) partners of an LLC or limited partnership, respectively. Furthermore, no state’s corporate laws will protect a company’s manager, officer, or director if the person is involved in a tort such as fraud or sexual harassment.

The fact of the matter is, no matter where the manager or the corporation is domiciled or does business, there is always at least some exposure to liability. Therefore, risk of such liability should be dealt with by doing one or (preferably more) of the following:

• Buying director’s liability insurance.

• Implementing an asset protection program to protect the director’s personal assets.

• If possible, have another person, or at least an LLC or other limited liability entity manage the company’s affairs as much as possible (this will shield directors and managers from some but not all claims.)