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The Necessity Of Piercing The Corporate Veil
The Necessity Of Piercing The Corporate Veil
The Necessity Of Piercing The Corporate Veil
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The ethical dimension: Should the Brennan brothers he held personally liable, because they mislead their attorney? Why or why not?
The benefits of a corporation The pierce corporate veil is exposing the shareholders to personal liabilities{RMBCA}. Brennan’s Inc. is a family owned restaurant that has family members as owners and shareholders. The court case involves a dispute with another family member. The corporation is the legal entity and it separates individuals who comprise; therefore, protecting the shareholders from personal liabilities. However, you can pierce the corporate veil:
1. A party is deceived or misinform into dealing with the corporation rather than the individual.
2. The corporation is established at no time to make a profit or always to be in debt or thinly capitalized with insufficient capital to meet current financial obligation
3. The corporation is for to avoid an existing obligation
4.
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Statutory corporate formalities, such as holding meetings required by the corporation
5. Personal and corporate interests are mixed together, or comingled.
In this case, these are the factors the Brennan’s failed to hold corporate meeting and take minute notes, statutory corporate formalities. As a result, they pierce the corporate veil.
The Economic Dimension: Do corporations benefit from shareholders limited liability if so how? For example, the company should obtain insurance, and if the company is sued the defendant is not held liable. If someone sues the insurance company is held liable. The law firm argued that court should pierce the business veil, because did not observe corporate formality, and because Brennan brothers did not honor their promises to pay their legal bills. Generally, shareholders are not personally liable for corporate acts.
Case 19-7
Distinct legal entity separates from individuals who compose it, thus insulating the shareholder from personal liabilities. Generally, shareholders are not personally liable for corporate
acts. 1. He wrote a check for the mortgage out of the business account. Limited liability must act as a limited liability this should react as separate entity. He owned the property he rented to his business. The owner was not separating from the entity, because he was comingling funds by paying personal expenses out of the business account and paying cash for business transactions out of the business account by law this if fraud. 2. The facts remain staff at the Chickasaw Club Inc. failed to check the identification of Pursley, are liable because they failed to be corporation’s obligation to follow state or federal requirements and they allowed the minor to get intoxicated. For the reasons mentioned, the club pierce the corporate veil by avoiding to abide the legal obligation of state and federal law by not checking to see if all customers are of legal age. In addition, this also falls under the general umbrella of statutory corporate formalities guidelines as well. Furthermore, liability for torts and crimes will apply in this case, because a 3. In this case, the pierce of the veil applies, due to statutory corporate formalities. The corporation policy or bylaws did not authorize the corporation to extend credit to its regular patrons as a marketing strategy, in order to maintain loyal clientele. Therefore, it’s not written in the policy and cannot be used by the corporation. Chicksaw Club corporation is a domestic and private, because the only way the corporation could be considered as foreign if the business was operated in Georgia and formed in Nevada or outside the United States, and a government entity will be considered public. Debate This…….. Usually, you are not responsible as the o
In “The Unscrupulous Partner” ethics case, Andrea Fuller is a tax partner at a local certified public accounting firm located in southern California. Ed McDouglass is a general partner of Skyline Views, which is a limited liability partnership that constructed, operated and sold condominiums. For devoting 100% of his time into the limited liability partnership and taking charge of any situation, Ed functions as the general manager for Skyline Views; therefore, he is allowed a management fee to include two percent of expenses and ten percent share of the year 's net income if it exceeds $100,000. As a result, Ed hired Andrea to complete the tax return for Skyline Views.
A nice advantage to owning a S corporation is that it is limited liability which means that the owner/owners of the company
Corporation – “A business organization that exists as a legal entity and provides limited liability to its owners.” (Longenecker, Petty, Palich, Hoy, Pg. 205) The main advantage of a corporation is that the business liability falls onto this entity instead of the individuals that own it. The disadvantages of this organization are found mostly in its formation. A corporation is expensive to create and requires compliance with state
A corporation was originally designed to allow for the forming of a group to get a single project done, after which it would be disbanded. At the end of the Civil War, the 14th amendment was passed in order to protect the rights of former slaves. At this point, corporate lawyers worked to define a corporation as a “person,” granting them the right to life, liberty and property. Ever since this distinction was made, corporations have become bigger and bigger, controlling many aspects of the economy and the lives of Americans. Corporations are not good for America because they outsource jobs, they lie and deceive, and they knowingly make and sell products that can harm people and animals, all in order to raise profits.
This means that those who invest capital cannot be found liable for more than they have ventured; should the company fail or be sued. This also means that corporations can be afforded similar rights and obligations as those enjoyed by groups of persons. These include ability to contract and enforce contracts, to own property, to sue and be sued under both criminal and civil laws. And further that corporations can be continued in perpetuity with shares and control transferred accordingly. Ultimately corporations are provided rights and given respect similar to persons. As such, it is completely reasonable in my view for employees to feel loyalty and respect for the organization and place of their daily work; in addition to the loyalty they feel toward their fellow coworkers. This is the natural basis of the collective sense of loyalty. And why I must agree with James Roche of General Motors, and view whistle-blowers as disloyal and detrimental to work place cohesion and
The main legal issue before the court arises, in determining whether liability should be extended to reach assets beyond those belonging to the corporation and whether the corporate veil should be pierced with regard to personal liability to others.
According to Corporation Act 2001 s124(1), it illustrates that ‘’A company has the legal capacity and powers of an individual both in and outside the jurisdiction” . As it were, company as a legal individual must be freely with all its capital contribution shall embrace liability for its legal actions and obligations of the company’s shareholders is limited to its investment to the company. This ‘separate legal entity’ principle was established in the case of Salomon v Salomon & Co Ltd [1987] as company was held to have conducted the business as a legal person and separate from its members. It demonstrated that the debt of company is belonged to the company but not to the shareholders. Shareholders have only right to participate in managing but not in sharing the company property. Besides ,the Macaura v Northern Assurance Co Ltd [1925] demonstrates that the distinction between the shareholders and company assets. It means that even Mr Macaura owned almost all the shares in the company, he had no insurable interest in the company’s asset. The other recent case is the Lee v Lee’s Air Farming Ltd [1961] which illustrates that the distinct legal entities between employee ad director allows Mr.Lee function in dual capacities. It resulted that the corporation can contract with the controlling member of the corporation.
Sollars, G. C. 2001. An appraisal of shareholder proportional liability. Journal of Business Ethics, 32(4), 329-345.
The concept of limited liability promotes recklessness and irresponsible risk taking. The argument for the return of unlimited liability is also an argument for separate legal personality to be taken less seriously. It is believed that, should it happen, would “eradicate the problem of corporate irresponsibility and unaccountability by identifying corporations more closely with their shareholders, encouraging a shift towards the older concept of ‘the company’ as an aggregation of
The Adelphia Communications Scandal in 2002 dominated the corporate mainstream when the company’s management prepared financial statements that failed to represent the economic reality of the company by excluding billions of dollars of debt. The Securities and Exchange Commission (SEC) calls the case “one of the most extensive financial frauds ever to take place at a public company” (Markon & Frank, 2002). At the center of the case is John Rigas, the founder, former chairman, chief executive of the company and the patriarch of the Rigas family. Also arrested are his sons, Timothy and Michael, both former executive board members, James R. Brown, former Vice President of Finance, and Michael C. Mulcahey, former Director of Internal Reporting. The lawsuit filed by th...
In some respects, the name, “Limited liability” Company is greatly misunderstood. It is a common faux pas to think that the liability of the company for its various debts is limited and that the doctrine was created as a loophole by which the company can get out of its contractual obligations. This is however not the case as on the occasion of insolvency, a company must liquidate all its assets to meet the demands of the creditors. Where the value of these assets is insufficient, the company will call on the unpaid share capital of its members or the amount which they have agreed to contribute to the assets of the company in an event of it being wound up . It is the liability of these members that is limited and not that of the company. There are also exceptional circumstances where courts will allow creditors pierce the “corporate veil” making it mandatory for shareholders to satisfy creditors’ claims. Hence for the shareholder, limited liability means participation in a company with limited risk. For the creditor however, it means the very real risk that in the event of bankruptcy he could remain unpaid for g...
A corporation is an association of people coming together and bound under a law, and their existence is independent of the existence of its members (Bakan, 2004). Corporate power, therefore, refers to the powers awarded to the members to make laws by which businesses are operated and regulated. The corporation is charged with the responsibility to conduct business practices while safeguarding the interests of the people. However, this expectation fell short when the members of big corporations used their power to wield financial power to themselves without considering the society. Corporations are divided into two main classes. There were the classic corporations which existed before 1860 (Jensen, 2001). These corporations were closely regulated by the governments and their growth limited. The second class of corporations emerged after 1900 and is the modern corporations (Jensen, 2001). These have been governed by making profits and dominating in the world, despite the harm they cause. The modern corporation has been impossible to regulate as some of them wield more financial power compared to a whole country. Their adaptability has been favored by ewer legal constraints and laws that have enabled them to consolidate.
By definition, ‘legal personality’ means the company is distinct from its members and it is not the agent of those shareholders. When there is an insolvency of the company, the members of the company is not liable for that as there is a separate legal entity. Salomon is a landmark case which first set out this principle and it is mainly about limiting the liabilities of the whole in order to protect the corporate groups by structuring themselves in ways when the company went insolvent. Since then, most of the traders are trying to attain the benefits from the Salomon principle by choosing their company limited by shares. As a matter of fact, the separate nature of the corporation from its members has been recognized in the 17th century and the early example would be seen in Foss v Harbottle. Although the courts were avid to apply this principle, it is notable that they deviated ever so often from that by ‘piercing the corporate
The Principle of Separate Corporate Personality The principle of separate corporate personality has been firmly established in the common law since the decision in the case of Salomon v Salomon & Co Ltd[1], whereby a corporation has a separate legal personality, rights and obligations totally distinct from those of its shareholders. Legislation and courts nevertheless sometimes "pierce the corporate veil" so as to hold the shareholders personally liable for the liabilities of the corporation. Courts may also "lift the corporate veil", in the conflict of laws in order to determine who actually controls the corporation, and thus to ascertain the corporation's true contacts, and closest and most real connection. Throughout the course of this assignment I will begin by explaining the concept of legal personality and describe the veil of incorporation. I will give examples of when the veil of incorporation can be lifted by the courts and statuary provisions such as s.24 CA 1985 and incorporate the varying views of judges as to when the veil can be lifted.
As a result, a company is able to have its own rights and obligations separate from its directors or shareholders. A further effect is that the company is solely responsible for its legal obligations. Therefore, the directors and shareholders are not liable for the debts of the company. However, with liberty comes the propensity for misuse and the benefits which a separate legal personality produces may be subject to abuse. Thus, a mechanism had to be created whereby those behind the company could be revealed so as to expose any guilty