A June 8, 2011 New York Times article by Steven M. Davidoff (a law professor at the University of Connecticut School of Law) notes that personal liability for directors and officers of large publicly held companies is less common than most of us think.  Professor Davidoff argues that the upside of serving as a director or officer of a large public company is huge, and the down-side is very limited.

Even if the potential liability of public company officers and directors is not all that high, such individuals are still in need of asset protection planning.  These individuals will generally have a high net worth.  They can face potential liability from numerous other sources — anything from divorce to an auto accident.  While many potential risks can be covered by insurance, personal asset protection is still advisable.

Small business owners may face a far greater risk of personal liability than public company officers and directors for a variety of reasons:

  • Small business owners frequently have to personally guarantee company obligations — which makes them directly responsible for those debts.
  • "Piercing the corporate veil" arguments will more likely be raised against a smaller business than a larger one.
  • Legal fees alone can be catastrophic for a small to medium sized business owner, even if he or she is eventually successful on the underlying claim.
  • Smaller businesses and their owners frequently carry less insurance than larger companies.

Whether you are running an international conglomerate or you own a small or medium sized business, you should focus on protecting your personal assets to the greatest extent permitted by applicable law.