What Are the Penalties If a Corporation Violates the Law?

When a corporation violates the law, penalties can vary greatly. Because corporations have legal status and the ability to act and enter into agreements, the potential for breaking laws is there. Because corporations cannot be incarcerated like individuals, penalties generally involve fines. In certain instances, corporate officers or executives can face criminal penalties for acts of corporate fraud or negligence.

Fraud involves making material misrepresentations or using deception for the purpose of financial gain. If a corporation commits fraud, it is possible to sue the corporation in court to seek financial compensation as well as punitive damages. Additionally, it is possible for a state attorney general or a district attorney to bring criminal charges against corporations in more extreme circumstances.

Under the Sarbanes-Oxley Act of 2002, corporations can face severe penalties for committing securities fraud. Additionally, under the terms of the act, corporate financial officers and chief executive officers can face criminal charges for providing materially inaccurate information when reporting their company's financial records. Willful violations under the act can carry up to 10 years in federal prison and a $1 million fine.

The most typical penalty when a corporation violates the law is the imposition of fines or punitive damages. These amounts are typically assessed by a judge, jury or state attorney general. In certain instances, a corporation may also be forced to pay restitution to any individuals or organizations who have suffered financial harm due to the conduct of the corporation. Additionally, it is possible to obtain injunctive relief against a corporation. Injunctions are court orders forbidding an individual or organization from engaging in specified activities.

For intentional violations of the law, liability may go beyond imposing penalties on the corporation. Shareholders, officers, directors and other employees can also be prosecuted for breaking the law, depending on their level of culpability. Although these parties can all be prosecuted individually, it is also possible to present evidence that the owners and operators of a corporation should be held personally liable for the actions of the corporation. This mechanism is known as piercing the corporate veil.