Legal Updates

A “straw man” registered as a shareholder is personally liable for company’s city tax debt

May 9, 2019
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Published in Afik News 283 22.05.2019

A company that ceased to operate left considerable city tax debts. The city demanded that the shareholder be personally liable for the company's debt, but she contended to be a mere “straw man” and not the real shareholder in the company and thus should not be personally liable for company debts.
The Court accepted the claim and held the registered shareholder accountable for the company's debt. A company refraining from paying its city taxes does not automatically establish grounds for piercing the corporate veil. However, it is possible in exceptional cases to attribute the company's city tax debts to a controlling shareholder. Here, the woman was formally registered as a shareholder while allowing, her husband, to act with the company at his will and without any supervision, all for the purposes of refraining from reporting the truth to tax authorities. Thus, there are grounds to personally obligate the registered shareholder because such conduct was not in good faith and aimed to deceive or deprive the creditors of the company and was against the company's purpose.

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