This non-oil and gas case should be of interest to startups and those of you who run “lean and mean” operation.  Thanks to Jerry Murray at Goldin Peiser & Peiser, LLP for bringing it to my attention.

You file the paperwork to set up a corporation so that your personal assets are shielded from assault by unprincipled plaintiff’s lawyers and their predatory lawsuits. You then get so busy searching for the next Daisy Bradford No. 3 that you ignore those pesky notices from the Secretary of State and the Comptroller.  In the meantime, your ambitious enterprise runs into a few hicccups. True to form, the bottom-feeding plaintiff and his lawyer – who must be as dumb as he is shameless – sues you personally even though even he should know that you have a corporation and are protected.

Surprise!  That lawyer and his client might know somethign you don’t.  Suntide Sandpit, Inc. v. H & Sand and Gravel, Inc. says that in Texas you could be personally liable if those letters you ignored were requests that you pay the corporate franchise tax and file annual reports.

Each officer and director of a Texas corporation whose charter has been forfeited for the failure to provide a report or pay a tax or penalty are liable for each debt of the corporation created or incurred after the date on which the report, tax or penalty is due and before the corporate privileges are revived. There are exceptions: For example, a director who objected or had no knowledge of the debt is not liable; personal liability attaches only to those directors and officers of the corporation at the time the debt is created or incurred; and the liabilities do not attach to tort judgments based on negligence; and reinstatement of the charter within 90 days is retroactive.

The entity in this case wasn’t in the oil business; however, charter forfeiture is not uncommon for corporations whose shareholders are too busy producing oil and not busy enough tending to their mundane corporate housekeeping obligations. There is potential exposure.

In this case, the directors and officers had no personal liability, but that was for reasons peculiar to this case, and the result was from an appeals court, which means after the directors lost at the trial court and incurred a gusher of legal fees.