Shareholder liability 401k (employer match)

[Guest koo]

Can you make the shareholders pay for the employer match in a 401k Plan? The company does not have enough money to fund the employer match. Is there a way to make the shareholders pay for it?

[J Simmons]

Usually, no. That's one reason that investors like to invest in a limited liability entity, such as a corporation. It limits their liability, and exposure to what they paid for the stock. However, and rare though it may be, check the corporate documents such as shareholder and stock subscription agreements that might contain a provision allowing for the corporation to assess the shareholders when the corporation faces cash flow shortages.

[Guest Sieve]

There always is the possibliltiy--also rare--that the courts could "pierece" the corporate veil, meaning that the corporate structure cannot be a shield to shareholders if the corproation is not treated as a separate entity and others are fraudulently mislead as a result. For example, a court might pierce the corporate veil if an employee with a non-compete agreement terminates employment and then sets up a corporation through which the individual competes with the former employer--the corporation, in that case, may be considered is a sham, and the individual therefore may be found to have broken the non-compete agreement.

In that instance, the individual shareholders might be found liable for the corporation's debts. But, again, it's rare (even though it is often litigated).