Legal Question in Business Law in Georgia

Indemnification of Individuals by a Corporation

I do not practice law in your jurisdiction. However, I believe the individuals would not be protected by state law and would remain liable. They would have to look to the corporation to protect them from any liability. If the individuals signed the contract they are liable unless released by the other party to the contract. I sugges you seek the advice of local legal counsel

You can run, but you can't hide

Gerald Hershenson is correct. An indemnity only means that after the creditor gets themoney from the individual stockholder/officer,then that person can look to the corporationsassets for reimbursement. The state incorporationlaws (of Ohio anyway) will not protect an unincorporated entity who later incorporates fromthe original creditors unless the creditors have agreed to it prior to incorporation.

Corporate indemnification

First, the fact the the corporation has assumed all the liabilities of the corporation does NOT release the individuals who formed the corporation from their personal obligation to perform the original contract UNLESS the people on the other side of the contract have agreed specifically to release the individuals from liability.

But then you ask if the people who formed the corporation are protected from liability. It sounds to me like you may be confusing two issues. Corporations can decide to indemnify their employees for lawsuits, etc. that might be brought against them as employees of the corporation. I would have to see the corporate papers to see if this is the case (but I am not licensed to practice law in your state, so I probably can't do that). I suppose that the bottom line is this - if the corporation actually takes care of any duties, claims, etc. that arise, the individuals should have nothing to worry about as far as personal liability is concerned. But if the corporation doesn't do that, then, yes, the individuals may have to cough up some additional money, etc..

Let me give you an example to illustrate. Let's suppose that you and I agree that I will build a building for you. I then form a corporation and assign all my agreements to the corporation. Then the corporation goes bankrupt (but I personally don't file bankruptcy). You didn't agree with the corporation; you agreed with ME. I can't, by myself (i.e., unilaterally) , without your consent, make you change your agreement so that the corporation is now bound by the agreement and I personally am not. I am still personally on the hook for whatever damages you might have suffered. In this situation, the corporation is irrelevant, as far as YOU are concerned. Now, if I also declare bankrutcy personally, you may be up the creek. But otherwise you should be entitled to sue my socks off until you get what we originally agreed to.

Now all of this will depend upon what we originally agreed to, which, hopefully, is in writing and you have a copy of it. If not, that can make terms of the agreement difficult to prove unless you have some really good witnesses. Sounds like you need a good lawyer, probably in your own state.

Indemnification by corporation

The parties have not reduced their liability to third parties. They haveonly caused the corporation to reimburse them if they get sued by thirdparties.