Personally Responsible for Corporate Debt? Why?
My brother and I created a corporation (the "Grill") to buy a little bar & grill. 2 years in, my brother leaves the business operations entirely to me, and moves about 500 miles away.
... 5 years pass and I develop chronic health problems. Bob (a long time customer of the "Grill" buys out my brother (49%) to give me some help and relief. To fund the deal, Bob borrows some from Don (Bob's long time friend). Don is also a customer of the "Grill"
Bob loses interest within six months... Business not doing well... My health is better, but a long way from okay. Operating capital depletes... Sales decline (abnormally) going into the summer (slowest time of the year). Cash flow crunch hits... and we’ve got a $3,000 electric bill due to keep the doors open.
Knowing Don has a personal interest in seeing the "Grill" survive (so Bob can repay Don), I talk to Don and get him to to pay the electric bill. At the time, I thought the cash flow problem was temporary, so I said we (the Grill) would pay him back in a week or two.
Cash flow (and business) is worse than I thought, and we slow pay Don for a couple of months. I become active daily... too much, and my health goes from bad to worse fast . Bob still not interested. So we closed the doors... shut down the business... literally to save my life. I haven’t been able to work since (almost a year now)
A month after we close, Don calls me wanting his money, and I suggested that since Bob was working (and I wasn’t), he might have better luck hitting Bob up, or adding it Bob's loan amount.
I hear back from Bob, that Don believes that I told him I’d never pay him... a statement I never made! (Don has a drinking problem, and was likely under the influence when I had this conversation with him)
About 2 months later I get served notice that Don is suing me personally in Texas Small Claims Court. I figure it’s a cinch, since it was a business deal, involving a corporation. I wrote Don a letter offering to try to settle the matter before we went to court, but I stated that it would have to be done in writing... no more verbals or conversations. I never heard back.
So in court, Don presents his credit card bill showing he paid the Grill’s electric bill. He claims he thought it was a personal loan to me. And claims he did not know there even was a corporation.
I claim it was a business loan and present the two canceled "Corporate" checks as proof, the electric bill showing it was in the corporation's name, Articles of Incorporation, and the current annual disclosure filing with the State of Texas.
Don wins! How? Why am I being held personally responsible for any of this Corporate debt? Since it was business debt, I think Don sued the wrong entity. Judge evidently disagrees. If the Judge is going to hold us personally responsible, then at most, I’d think I’d have to pay 51%... I’m appealing to the County Court.
What am I missing here?
Thanks in advance for any insight you may provide.
IM_confused
