Exceptions to the Principle of Limited Liability for Shareholders

An often cited advantage of incorporation is that it provides shareholders with a shield from personal liability arising out of the operation of the business.  However, in Alberta, there are certain exceptions to the principle of limited liability and personal liability to a shareholder could occur under certain instances, for example, when:

• A shareholder signs a personal guarantee for the corporation's debts
• A shareholder has contracted personally without giving adequate notice to a third party that he or she was acting as an agent for the corporation
• Loss occurs as a result of a shareholder's personal act or negligence of a shareholder
• A shareholder has not fully paid for his or her shares
• Money or property was paid or distributed to a shareholder as a consequence of a reduction of capital contrary to the Business Corporations Act (Alberta)
• A shareholder has assumed powers of a directed under a unanimous shareholders agreement
• A shareholder has received over-payments on liquidation
• A court has "lifted the corporate veil"