Who is liable when individuals act as a corporation without authority?

When individuals act as a corporation without the authority to do so, the liability falls on those individuals who have assumed that role. This situation typically arises in cases known as "ultra vires" actions, where individuals engage in corporate activities without formal authorization or proper incorporation procedures.

The rationale for holding these individuals liable is grounded in the principle that they have taken on responsibilities and obligations that legally bind them. Since they are misrepresenting themselves as acting on behalf of a corporate entity, which does not exist or is not recognized legally at that time, they are personally accountable for any contracts, debts, or liabilities incurred during that period.

In distinction, shareholders and directors do not share this liability simply by virtue of their positions, especially if they are not involved in the unauthorized acts. The state has no involvement in the individual liability incurred by persons acting outside legal authority, rather it is the individuals who will face legal repercussions for their actions.