[TZubiri]

Can any lawyer clear this up for me?

If the company ends up having no commercial success and the lawsuits for damages rack up, can they just close the company file for bankruptcy and face no consequences? Or is there some civil or criminal risk to this behaviour?

[gnopgnip]

Usually you just hear about people suing the company, they are easier to collect from. Often they have insurance that will pay out a claim that is faster to pursue than a lawsuit. And if the damages are really large a single employee could go bankrupt. Also because the company is vicariously liable for the actions of their employees in the scope of their duties.

But anyone that personally causes damage through negligence or intentional acts can be sued personally as well. If the employer is bankrupt the employees involved would be the only ones pursued. And these damages are relatively small individually, bankruptcy is not an issue.

Also there are some exceptions to the limited liability for company owners or directors like for illegal activity and fraud.

[ElProlactin]

In a case like this, it would be typical for all possible defendants to be named.

Since the Airbnb bookings were ostensibly made by individuals, most attorneys would also name those individuals (in addition to the company if the company was named).

Having your founders/management/employees rent houses via Airbnb is a really bad strategy for limiting your liability using a company.

[bluGill]

Lawsuit results get priority in bankruptcy court and so are still likely to pay out. The exact order varies by country, type of bankruptcy, and I'm not a lawyer. in general when you are bankrupt there is money just not enough and the courts decide who gets it. That money often exists after selling everything (desks, computers, chairs...) even if there is none now. The courts then decide who gets it, court fees, bankruptcy lawyer fees (if reasonable), banks, then the owners. Often the banks will take the company as a whole and put in new management if the business is otherwise good (think plumbers where the business is likely good but they can fail for bad management, tech companies like this they may give up on)

[Borealid]

As a slight hint, one of the more common types of corporation is an "LLC". LLC stands for Limited Liability Company.

If the company's owners had unlimited liability for problems the company caused, that wouldn't be much of an LLC, would it? The primary purpose of an LLC is to make it so that the owners (often the founders) cannot personally be held responsible for debts the company incurs, even debts incurred through their instructions.

This also includes debts caused by punishment for the company breaking civil contracts, but doesn't make individuals who use the company to break the law immune to criminal charges. But the standard of evidence for prosecuting that type of malfeasance is pretty high...

[JumpCrisscross]

> primary purpose of an LLC is to make it so that the owners (often the founders) cannot personally be held responsible for debts the company incurs

It’s more so investors who aren’t involved in day-to-day decision making can invest without worrying that the founders will create liability for them.

[frrr]

This. You can still go after management in certain circumstances

[Borealid]

I said the owners can't be held liable, I meant the owners can't be held liable.

You can "in certain circumstances" (negligence, overt criminality...) go after the managers. You probably can't go after the managers for things like producing a business plan they could have plausibly believed was legal and causing the company to incur civil liability.

In the situation described in this article, probably both the owners and the managers (likely the same people!) get away without being held accountable, and the victims have no recompense because the company folds.

[gamblor956]

LLCs are the limited liability form also most easily subject to veil-piercing (meaning, the courts ignore the limited liability shield to go after the assets of the owners) as most LLCs fail to properly maintain all the technical minutae necessary to actually keep the liability shield in place.

Insufficient capitalization is the #1 reason for piercing the veil (and also works well against corporations). This involves not putting enough investment into a company to pay the foreseeable debts it would incur from its activities. This means: if your LLC incurs debts knowing it lacks the ability to pay them off, the courts can pierce the LLC and go after you.

[JumpCrisscross]

Did an individual or the company rent the Airbnb?

[ChoGGi]

From the article it sounds like an individual did.

[jfengel]

Officers of the company can be at risk under certain very poorly defined circumstances. Basically, you have to prove that they personally were at fault and were just using the company as a legal cover for their misdeeds.

https://en.wikipedia.org/wiki/Piercing_the_corporate_veil

If this were happening in the real world, they would have to personally back some of the corporate debts before banks would lend them money. But this is Silicon Valley, where banks and VCs just give away money to their buddies.

[qiqitori]

Hmm? Airbnb isn't on the hook?