Legal Question in Business Law in New York

Not-for-profit group member liability

Please remember that there is no substitute for the advice which you would get in a consultation with an attorney during which you were able to explore all of the facts unique to your individual situation.

People generally incorporate in order to insulate themselves from exactly the type of liability you describe. A corporation is a separate, recognized legal entity. If its employees are acting within the "scope of their employment", for example, while rescuing a dog, the corporation can be sued. If the plaintiff wins the lawsuit, the plaintiff can only go after the assets of the corporation in order to satisfy a judgment. In that sense, individual employees are protected from liability while performing their jobs.

Of course, you could sue the individual employee. Often, however, plaintiffs will find out that the individual employee has few assets, and is not worth suing. I can't sue the butcher's wife if the butcher gives me poisonous meat. But if I win the lawsuit against the butcher, and successfully enforce the suit against his assets, his wife will still suffer. And if the butcher deliberately transfers assets to his wife for the purpose of cheating me, I might have a legal remedy against them both for defrauding me as a creditor; that is a long story and would depend upon the circumstances.

Although a corporation is recognized as a separate legal entity, we all know as a practical matter that it is the officers and directors who make the decisions. Under certain circumstances defined in the Business Corporations Law, the officers and directors might be held liable to third parties, such as stockholders, or people who have contracted with the company and been defrauded. There are two ways to protect the officers and directors:

One, the certificate of incorporation can provide that the corporation indemnify the officers and directors, if they were acting in good faith.

Two, the corporation can purchase Directors' and Officers' ["D & O"] liability insurance. That policy, depending upon its terms, might pay the damages if the court found for a plaintiff against the officers and directors, and might even pay for their legal fees. You would have to read the contract to determine the coverage. D & O insurance can be expensive, but worth it. You might want to shop around for quotes.

Good Luck.