Why Is The General Corporation Law Silent On Shareholder Liability For Corporate Debts?

Allen Matkins

Allen Matkins

Today's blog revisits (and answers) a question that I posed nearly eight years ago in this post.  The question was: "Where Exactly Is It Written That Shareholders Aren't Liable For Corporate Debts?"

Shareholder immunity from corporate obligations is not an immutable law of nature.  In fact, the California Constitution and various statutes imposed proportional liability for corporate obligations on shareholders until 1931, when they were repealed.  The late Professor Harold Marsh, Jr. provides the following explanation for why the current General Corporation Law nowhere negates shareholder liability for corporate debts:

The Drafting Committee decided that they would not attempt to formulate a statutory definition of the alter ego doctrine.  In view of that decision, it was considered unwise to make a general statement of non-liability, although that clearly is the general rule, since it might have been considered as intended to effect a repeal of the alter ego doctrine.

Marsh's California Corporation Law § 16.03.   

Note to readers:  I am a co-author (with R. Roy Finkle) of the Fifth Edition of Professor Marsh's treatise.

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.

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