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Law Paper One

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Submitted By mpl123
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7/3/2015

1. According to the appeals court, when will it hold an individual shareholder personally liable for the debts of a corporation? Why?
A corporation is a legal entity that has one or more owners known as shareholders. Shareholders investment is usually there only liability in the corporation and they are usually held personally liable for the debts of the corporation. The court will ignore the corporate structure and will “pierce the corporate veil” when the corporation is being used to “perpetrate a fraud, circumvent the law, or in some other way accomplish an illegitimate objective.”(pg67) According to the appeals court it will hold an individual shareholder personally liable for the debts of the corporation when a controlling shareholder conducts business a haphazardly manner and it is hard to distinguish the business from the shareholder. Another reason to pierce the corporate veil is if the privileges of the corporation are being use by a shareholder for personal gain and to avoid responsibility. One factor that is a common cause for the courts to pierce the corporate veil is “the corporation is set up never to make a profit or always to be insolvent, or it is too “thinly” capitalized. That is, it has insufficient capital at the time it is formed to meet its prospective debts or potential liabilities.”(68) This factor is present in this case when Anthony D. Lee CPA looked into the financial history of CSI and testified that the company was “undercapitalized during each year from 1982 through 1986 and was, at all relevant times since its inception in 1981, insolvent.” 2. Analyze this case as if you were the appeals court. Do you think the appeals court affirmed or reversed the trial court? Why? Be very thorough with your analysis here. 1. NHA- wanted to renovate a hotel 2. Richard Ahlborg- a contractor competing for the

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