california business bankruptcy
Fraudulent bankruptcy by bad management?
<p>Bob buys a successful company for a large amount of money, on loan from a Bank. Within a year, the company is bankrupt. Assume for the sake of the question that this is due to intentional or reckless poor management.</p>
<p>The banks, as well as any suppliers, lose their money; all employees lose their jobs and 2 months of unpaid salaries.</p>
<p>Does Bob have any liability if they intentionally or recklessly manage the company so poorly it ends up in bankruptcy?</p>

<h2>Not as a shareholder</h2>
<p>The entire point of limited liability companies is that the shareholders are protected from the losses of the company - they can only lose the amount they paid (or still owe) for their shares.</p>
<p>The directors and officers of a company have various <a href="https://content.next.westlaw.com/practical-law/document/I7a06a178f78e11e698dc8b09b4f043e0/Practice-Note-Fiduciary-Duties-of-the-Board-of-Directors-CA?viewType=FullText&amp;originationContext=document&amp;transitionType=DocumentItem&amp;ppcid=916c91057bda4c53a264924fd9ce86a0&amp;contextData=(sc.DocLink)" rel="nofollow noreferrer">duties</a> that they owe to the company and can be held liable if they breach those duties. Those duties are:</p>
<ul>
<li>the duty of loyalty,</li>
<li>the duty of care,</li>
<li>the right to rely on certain information,</li>
<li>the business judgment rule, and</li>
<li>fiduciary duties in the context of insolvency, corporate opportunities, and interested director transactions (or insider transactions)</li>
</ul>
<p>&quot;[I]ntentional or reckless poor management&quot; would, on the face of it, appear to breach the duty of care and the business judgement rule and could expose the directors to liability.</p>
<p>However, Bob is a shareholder; not a director or officer. If he is not involved in the company beyond appointing the directors, he is not liable. If he points himself as a director or becomes an officer by telling the directors what to do, then he could be liable.</p>
