Article · 8 min read

Founder Liability: When Are You Personally on the Hook?

California Startup Law Firm Free Intermediate

A plain-language map of exactly where your limited liability shield holds and where it cracks, which is the anxiety underneath every shutdown. It spells out that company debts and employment obligations belong to the company, not you, unless the veil is pierced, and names the specific triggers that pierce it: fraud, ignoring corporate formalities, unpaid taxes, and your own negligent or intentional conduct. That is precisely our line: you are not personally on the hook unless you gave a personal guarantee or committed fraud.

  • Insolvency debts and employment obligations sit with the company; founders are not personally liable for them by default
  • The shield breaks only in specific ways: fraud, using the company for improper purposes, or skipping formalities like paying taxes and holding meetings
  • You always own your own conduct, so negligence or misconduct during the wind-down can attach to you personally even inside a corporation
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The question it answers

  1. How do I return money to investors when I'm shutting down, and how much of it?

Read with it

  1. This is the term sheet clause that decides who gets the leftover cash first when you shut down, and this guide walks the exact... AngelList Article · 10 min read Liquidation Preference AngelList Education Center
  2. A real, recent Indian example of exactly the move we are recommending. After 3.5 years and $17.5M raised from Tiger Global,... Indian Startup News Article · 4 min read SaaS startup Toplyne shuts down, returns capital to investors Indian Startup News
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