Navigating the Legal Side of Business Leadership

A day in the life of a business manager with legal training

A corporation is a legal entity, separate and distinct from its shareholders, directors, and managers. In practice, this means that executives and managers of a corporation may be shielded from the company's liabilities by what's referred to as the corporate veil.

However, managers shouldn't trust the corporate veil to protect them legally. When they consider it necessary, the courts pierce this veil, finding individual managers legally culpable for their behavior, or even for the behavior of their employees.

Effective Learning

FAQs

After completing this topic, you should be able to

• recognize which elements of a corporate scenario justify piercing the corporate veil

• recognize the importance of the corporate veil concept for the actions of individual managers and employees

Understanding your legal responsibilities as a manager can help you avoid legal problems for both yourself and your company.

As a manager, being implicated in the illegal behavior of a corporation can have devastating consequences. Just ask two former WorldCom employees who found themselves at the center of its highly publicized fraud scandal.

The Science of Better Learning

The legal concept that the Salomon principle and others like it support is also known as the corporate veil. The veil shields the people behind a corporation from liability for the corporation's actions.

Real case examples illustrate some of the criteria courts take into account before piercing the corporate veil. These examples also set precedents for future cases.

Use this job aid to review the definition, benefits, and drawbacks of the corporate veil, and the types of cases in which courts have found reason to pierce the corporate veil.

After completing this topic, you should be able to

• recognize how to handle concerns and warnings appropriately

• recognize the sensitivities in a communication scenario that could potentially lead to legal consequences

Legally, a corporation and its members are separate entities. However, precedents for lifting the corporate veil mean that managers, directors, and other high-ranking personnel can be held personally liable for actions of their company – even when they have no direct knowledge of these actions.

The second way to protect yourself and your organization legally is to respond appropriately to concerns and warnings. When you receive early warnings about possible illegal or unethical activities in your organization, it's easy to view the warnings in a negative light. However, these types of warnings can greatly benefit you and your company by saving you from significant legal trouble later on.

The final way of protecting yourself and your organization is by communicating wisely. In the legal system, courts can use communications, correspondence, and documentation as evidence of an action, or of intent.

Use this job aid to review the guidelines for responsible management behavior.

After completing this topic, you should be able to

• determine the manager's responsibilities in terms of the implications of vicarious liability in a scenario

According to the principle of vicarious liability, a superior may be held responsible for the actions of subordinates. So in the case of the restaurant, the employer may be held responsible for the injuries caused by the drivers, whether they acted independently or not.

As a manager, many of your responsibilities in relation to avoiding vicarious liability are an extrapolation of your general responsibilities as a manager.

Use this job aid to review the guidelines for responsible management behavior.

Congratulations! You just finished the Business Law and the Manager's Responsibilities course. This was the third course of the three that together form the Business Law series.

You think knowing stuff changes the game? You think sitting in a library, stacking up facts like you’re building a Jenga tower, is gonna make you a winner? Man, that’s cute. But life ain't a trivia night. Information alone? It’s worthless. It’s like having a Lamborghini in your garage but you never learned how to drive. You just sit in it, making engine noises. Vroom vroom. People walk by, they see the car, but they also see you ain't going nowhere. You got all this knowledge, all these textbooks, but when life throws a punch, you’re still looking up the definition of "duck." It’s what you *do* with that information that actually matters. Don't be the person with the shiny car and no keys.