What are the liabilities of shareholders and controlling shareholders?

One of the primary benefits of forming a corporation is protecting shareholders and limiting their liability. However, there are 4 common ways that shareholders may be liable for the harm they cause:

(1) Shareholders can be held personally liable if a plaintiff is able to pierce the corporate veil. We covered this is its own card, but let's do a quick refresher. When you form a corporation, the shareholders are protected behind the shield of the corporation. It's why if Amazon sends you the wrong product, you can try to sue Amazon but you can't really try to sue Jeff Bezos or any of Amazon's other shareholders. However, there are some circumstances where courts will allow a plaintiff to directly sue shareholders, effectively piercing the veil and shield of the corporation. One example is when someone creates a corporation purely to try to avoid liability for their actions, effectively trying to defraud someone. Court's don't like this, and so they don't let the shareholder(s) hide behind their corporation.

(2) Not all shareholders are equal. Since every share a shareholder owns gives them one vote, those who own a majority of the shares will always have the majority of the votes. This can lead to some majority shareholders acting like jerks and implementing rules that deprive minority shareholders from participating in important positions within the corporation, or excluding them from other benefits, effectively leaving them out in the cold or, more technically, freezing them out of the corporation. Depending on the severity of the abuse, majority shareholders who freeze out their minority shareholder colleagues may cross a line that violates their legal duties to play nicely with minority shareholders. If this occurs, minority shareholders can sue the abusive majority shareholders. In other words, it's sort of like when an older sibling terrorizes a younger sibling, and then the younger sibling tells Mom.

(3) When corporations do well in business, they grow in value, increase in size, and accumulate "stuff" called "assets." Shareholders benefit from this growth because the portion of the company they own becomes more valuable just as the business becomes more valuable. But lurking in the shadows of the business world are looters. Looters are selfish investors who seek out companies that can be butchered and sold off in pieces for personal gain, even if it harms or destroys the corporation. Thus, if a controlling shareholder sells their controlling shares to a looter, giving the looter control over the company, the shareholder can be held liable for damage caused by the looter.

(4) As you've learned in other cards, controlling shareholders generally have the power to unilaterally elect directors and officers within a corporation (unless the corporation does something like cumulative voting, which we've covered in another card). If a controlling shareholder gets caught being paid or compensated (i.e., bribed) to elect certain individuals, then they can be sued by the minority shareholders for their abuse of power.