What can the Creditors do to S/H or Corp about paying back $100,000?
A: Creditors could sue under Uniform Fraudulent Transfer Act and force the shareholders to repay the corporation, and thereby satisfy creditor judgments to the extent of the money recovered.
Jail time a possibility?
A: Yes, if a criminal complaint were acted upon by the district attorney. However, most of the time, with this sort of white collar crime, the DA doesn't act, in the hopes that the creditors will spend their own money to try to collect. Then, if the creditors succeed, the DA can use the creditor's judgment as evidence of criminal culpability. Still may decide to not prosecute.
Already Inc & Use New Corp.
You could offer to pay the creditors everything that's left in the C Corp, in exchange for a release from further liability, and then just close the doors on that business.
Re the $100K, you may want to seriously consider putting it back -- but, it's your call.
Hope this helps.
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You apparently have some particular argument in mind whereby the owners cannot be reached due to the corporation's lack of equity. However, if creditors can show that the corporation's assets were plundered, then they will "pierce the corporate veil" and the shareholders -- especially the board members and officers may be held personally liable for the misappropriation of assets.
Feel free to explain what you're trying to accomplish, because otherwise, my answer in correct.
You describe that the "shareholders borrowed" from the corporation to pay a corporate debt. Shareholders don't borrow from their own corporation to pay a corporate debt, because the shareholders aren't legally liable for the debt in the first place.
If I were representing a creditor, I would want to know where that money went and who this "foreign" individual is. And, if I were a judge, I would be hoping to hear testimony re the entire audit trail of the money and the nature of the relationship between this foreign person and the shareholder -- because it looks like a sham transaction intended to extract money from the corporation to the impairment of creditors.
Moreover, if the President is also a personal beneficiary of a corporate contract, then the President can be held personally liable for debts associated with that contract.
In either of the above circumstances, there is grounds to "pierce the corporate veil" and hold the shareholders personally liable for the losses of the creditors -- at least in the amount of $100,000.
Now, if it turns out that this $100,000 in fees was a perfectly legitimate expense, then no one has anything to worry about. I'm merely pointing out that something looks fishy in your statement of facts, and under the law, if what I'm describing can be proved, then that's misappropriation, because the shareholders would have been unjustly enriched at the benefit of the creditors in the amount of $100,000 -- in which case, they would be obligated to return the money.
Don't shoot the messenger -- I'm just telling you what I find, based on your stated facts.
If there was no misappropriation, then all the damage will be contained within the corporation. Shareholders are only liable to the extent of their respective investment -- which means that their stock will be zeroed out. And, that will be the end of things.
But, if the company is receiving $1 million in revenue, then maybe a Chapter 11 is iin order to try to keep the creditors at bay and continue to run the corporation.
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