Opinion ID: 2630552
Heading Depth: 1
Heading Rank: 7

Heading: Officers And Agents Act In A Representative Capacity For The Corporation

Text: Insulation from individual liability is an inherent purpose of incorporation; only extraordinary circumstances justify disregarding the corporate entity to impose personal liability. William Meade Fletcher, Fletcher Cyclopedia Corporations § 41 (Perm. ed. 2002 Supp.). Two important principles of law insulate corporate officers from individual liability when they are acting on behalf of the corporate entity. First, a corporation is always a separate entity distinct from its officers, directors, or investors. Newport Steel Corp. v. Thompson, 757 F.Supp. 1152, 1156 (D.Colo. 1990). Typically, a court will not allow the corporate veil to be pierced, except in certain factual circumstances. The court considers a variety of factors to determine whether the corporate form should be disregarded including: (1) whether the corporation is operated as a separate entity, (2) commingling of funds and other assets, (3) failure to maintain adequate corporate records, (4) the nature of the corporation's ownership and control, (5) absence of corporate assets and undercapitalization, (6) use of the corporation as a mere shell, (7) disregard of legal formalities, and (8) diversion of the corporation's funds or assets to noncorporate uses. Id. at 1157. Second, corporate officers occupy the position of agents in relation to third persons dealing with the corporation. Therefore, personal liability of officers is governed by principles of agency law. William Meade Fletcher, Fletcher Cyclopedia Corporations § 41. Generally, a corporate officer acting in his or her representative capacity and within his or her actual authority is not personally liable for such representative acts unless acting on behalf of an undisclosed principal. Kunz v. Cycles West, Inc., 969 P.2d 781, 784 (Colo.App.1998). Furthermore, unless otherwise agreed, a person making or purporting to make a contract with another as agent for a disclosed principal does not become a party to the contract. Restatement (Second) of Agency § 320 (1958). A corporate officer is not the employer responsible for creating the contractual employment relationship and is not personally responsible for a breach of that relationship, unless he or she created the relationship without disclosing the responsible principal corporation to which he answered as an agent. Instead, an officer acts for the corporation when he or she extends an offer of employment or terminates the employment relationship. See United States v. Van Diviner, 822 F.2d 960, 963 (10th Cir.1987) (officer was not personally liable for custodial maintenance contract when he acted for a disclosed principal corporation); Winkler v. V.G. Reed & Sons, Inc., 638 N.E.2d 1228, 1231 (Ind.1994) (It is a matter of black-letter law that where the agent acted within the scope of the agent's authority in signing a contract on behalf of the principal, the remedy of one seeking to enforce the contract is against the principal and not the agent); Phillips v. Montana Educ. Ass'n, 187 Mont. 419, 610 P.2d 154, 157 (1980) (officers, as agents of a corporation, are shielded from personal liability for acts taken on behalf of the corporation, within the scope of employment, and in furtherance of corporate business interests, including breaching of employment contracts).