As long as there is no negative effect on creditors, a sole shareholder can use corporate funds for personal debts.

Decision and Order: corporation cannot recover funds paid by former sole shareholder to pay personal legal fees

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A person who was a sole shareholder, officer and employee of a domestic corporation used corporate funds to pay personal legal fees. She sold her entire interest in the corporation to another. The corporation then brought an action against the law firm which had been paid the fees. The trial court denied the defendant law firm's motion for summary judgment. On appeal, the Appellate Division, Second Department reversed the Supreme Court, holding that where a person is a sole shareholder, she is an equitable owner, and so long as there is no negative impact on creditors of the corporation, she may use corporate funds to pay for or secure personal debt.

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Reference Info:Decision | State, 2nd Circuit, New York | United States


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Reuben Ortenberg, Woods Oviatt Gilman, LLP | Attorney Advertising

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