If you are the proprietor of a small business (officially a sole proprietorship), there is little or no separation between business and personal money transactions.
          If your company borrows money, you have borrowed the money. If your business makes a promise to pay someone, you are automatically personally guaranteeing that payment.
          Within corporations however, there is theoretically a shield between the individual and the company when it comes to legal responsibility for financial actions. However, financial executives (and other officers and directors) within corporations are not totally insulated from personal fiscal responsibility.
          Corporate liability protection is not unqualified. For example a corporation cannot:
          - Protect you from your own negligent acts. Being a director of a corporation does not protect you from personal liability from the wrongs you personally commit. For example: You run a milk delivery service and you fill in for a driver who has called in sick and run into a van full of people; you are personally liable for the damage.
          - Protect you from things you personally guarantee. Banks and corporate creditors often require personal guarantees from people in a corporation. If your business fails, you are personally responsible for repaying these debts.
          - Protect you from personally paying governmental employment withholding taxes and sales taxes. When taxes are held in trust, all officers and anyone who has check-signing authority are jointly liable to the government for these taxes. That means that as a principal, you cannot hide behind the corporation and will be personally liable for these taxes if they are not paid.
          - Protect you from personally liability for unpaid employee wages. In some states this extends to the ten largest shareholders as well. Until this past February, Colorado had this personal liability provision. However, recently it was removed by the Colorado Supreme Court in the Leonard v. Memories.
          Another area of personal exposure is the Alter-ego Doctrine. Under this doctrine, when a corporate entity is used to perpetuate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts may not observe the separation of corporation and its stockholders. Unfortunately, this doctrine only comes into play when unscrupulous people are attempting to extract money for their own personal pleasure. Note that this doctrine extends to shareholders as well as officers and directors.
          In the early years of a company's life, almost all participants are involved in raising money. Amidst all the excitement of a new venture, it's very important to remember that simply forming a corporation does not protect its officers and directors from fraud; particularly securities fraud.
          Officers and directors face personal liability under a collection of provisions in the Securities Act of 1933 and 1934. Violations of various sections (and rules relating to) the 1933 and 1934 Act may subject directors to personal liability for making false or misleading statements or omitting material information in documents that are filed with the SEC.
          Finally, directors may be held liable for violations of Rule 10b-5 of the 1934 Act. This rule forbids anyone with material nonpublic information about a security from conducting transactions on the basis of that nonpublic information. Insider trading and tipping by a director can result in the forfeiture of any profits by the insider, heavy civil penalties, and criminal prosecution. The most notorious insider traders have been rewarded with lengthy prison terms.
          Two recent specific examples (with names omitted to protect the guilty) of fraud cases include:
          - Overstating advertising revenues by $46 million (64%) for the first three quarters of 2001. The defendants each agreed to settle the Commission's lawsuit, and to plead guilty to the criminal charges.
          - Improper and misleading accounting and deceptive disclosures relating to a $300 million financing transaction.
          All of the above is a rather long-winded way of saying, "Don't lie, either by construction or omission."
          If you deal with money, particularly within a corporation here are "seven habits of highly effective people" that are not in jail.
          - Tell the truth
          - Don't write checks until your deposit has cleared the bank
          - Disclose to your stockholders the truth about today, leave personal prognostications at the office
          - Pay your employees what you owe them
          - Don't do anything that requires you to "fix it later."
          - Don't borrow money personally from your company
          - Don't gossip over martinis about your publicly traded company
          Taking these habits to heart would certainly change the recent headlines regarding Officer wrongdoings from visions of horizontal stripes to more vertical views of fiscal prosperity.