Incorporated business owners must be mindful of RCW 23B.02.040, which provides:

All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under this title, are jointly and severally liable for liabilities created while so acting except for any liability to any person who also knew that there was no incorporation.

Based on this code section, it may be possible for a corporate representative to be held personally liable for acts undertaken on behalf of the corporation if the corporate entity had been dissolved at the time of taking such action.

The definitive case under Washington law on the interpretation of RCW 23B.02.040 is Equiptco Div. v. Yarmouth, 134 Wn.2d 356; 950 P.2d 451 (1998).  In this case, the plaintiff filed a lawsuit against a corporate representative for actions taken on behalf of a corporate entity that had been administratively dissolved.  

The defendant denied liablity on the basis that, even though the corporation had been dissolved at the time the actions had been undertaken, steps had been taken to reinstate the corporate entity. 

The court provided a history of applicable law, which it paraphrased as saying: “Persons acting as a corporation during a period of administrative dissolution are not personally liable if they reinstate the corporation with in two years of dissolution.” (Equiptco at p. 368.)  This time period is now five (5) years under RCW 23.14.220 and reinstatement dates back to the date of dissolution as if the administrative dissolution had never occurred. (Id.)

However, even though the reinstatement is retroactive, the court concluded that liability could still be imposed under RCW 23B.14.040 if it could be proven that the defendant corporate representative had actual knowledge that there was no incorporation.  (Equiptco at. p. 370.) 

This update was written by Tom Pedreira, who is Of Counsel with the Mikkelborg firm. Mr. Pedreira practice focuses on business law and corporate law.