About That NY Shareholder Liability Law that was Quietly Passed Last Week...

David Feldman |

Shh



An already controversial part of the New York General Corporation Law, Section 630, makes the largest 10 shareholders of private New York corporations personally liable to employees if the company does not pay their wages. The provision has been around since the 1800s and was part of a compromise in which corporations were first allowed in exchange for requiring shareholders to cover unpaid compensation.

NY Gov. Cuomo has now signed a bill (quietly, and right before Thanksgiving) expanding the law to also apply to companies incorporated or headquartered elsewhere so long as they have operations in NY.

Argument for the change: It’s not fair to get around the law just by incorporating elsewhere, and this law only hurts bad people who don’t pay their employees.

Argument against: This is archaic, no other state does it, and it flies in the face of the whole idea of forming a corporation to insulate oneself from personal liability for the obligations of the company. Plus, some say it could lead companies to move operations outside New York.

My view: I could see myself on either side of this, so you guys will have to figure this out on your own! But there are things like this, and other anomalies like the requirement to spend thousands “publishing” your intent to form or qualify an LLC in New York, that do seem to add unnecessary negative attention to New York’s regulation of business.

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