Taking a publicly listed company private does not inherently provide legal protection to founders from lawsuits. The liability of founders in relation to the business activities of their company is a complex legal matter that depends on various factors, including the nature of the lawsuit, the legal structure of the company, and the actions of the founders.
Here are some points to consider:
Personal Liability: Founders can be personally liable in lawsuits if they are found to have engaged in fraudulent activities, breached their fiduciary duties, or personally guaranteed business debts. However, if the founders have operated within the law and the bounds of corporate governance, the corporate structure typically provides a degree of legal protection.
Corporate Shield: Generally, a corporation or limited liability company (LLC) offers a ‘corporate shield’ that protects personal assets of the founders from business liabilities. This means that, in many cases, creditors and litigants can only pursue the assets of the business, not the personal assets of the founders.
Director’s and Officer’s (D&O) Insurance: Many companies purchase D&O insurance to protect their executives and board members from personal losses if they are sued as a result of serving the company. This insurance can cover legal fees, settlements, and other costs associated with lawsuits.
Bankruptcy Proceedings: If a company is facing bankruptcy, there may be an automatic stay on lawsuits against the company during the bankruptcy process. However, this does not prevent lawsuits from being filed against the founders personally, unless they also file for bankruptcy protection.
Going Private: The act of taking a company private can involve substantial financial transactions and changes in ownership structure. If not done carefully and legally, the process itself can lead to lawsuits from shareholders or regulators.
Regulatory Oversight: Founders are still subject to the laws and regulations governing financial transactions and corporate conduct. Regulatory bodies can still pursue legal action against founders if there is evidence of wrongdoing.
It’s important to note that each legal system has its own rules and regulations regarding corporate structure and founder liability, and the specific circumstances of each case can greatly affect the outcome. Founders concerned about legal protection should consult with legal professionals to understand their risks and the steps they can take to mitigate them.