BORGS PMT

Question 1

____ liability: Liability of a person for the persons owns actions.

Answer 1

Direct liability

Question 2

_____ liability: Liability for the act of another person.

Answer 2

Vicarious

Question 3

T/F) Absent a Lim. Liab. entity, investors who create, finance, and benefit from a business have direct and VL for injuries business inflicts. [SP]

Answer 3

True

Question 4

Do partnerships benefit from limited liability?

Answer 4

Only if they elect to have it. IE: LLP

Question 5

T/F) Investors in LL entities are NOT liable for entities obligations/harms.

Answer 5

True, can still be directly liable for their own wrongful acts.

Question 6

LL is an exception to or negation of what?

Answer 6

Vicarious Liability

Question 7

What is one of the “policy rationales” for limited liability?

Answer 7

Capital formation… it actually encourages creation of businesses.

Question 8

What is one of the narrow exceptions to limited liability? IE: How can you get at the investors?

Answer 8

Veil piercing

Question 9

2 prong test for veil piercing?

Answer 9

1. Entity lacks separate existence
2. Recognizing the entity would = fraud or injustice

Question 10

“There is such a unity of interest/ownership between the corp. and the individual / organization controlling it that their separate personalities no longer exist.”

Case?

Answer 10

Folger v. Cottle

Question 11

What case for arguing veil pierce exception?

Answer 11

Folger v. Cottle

Question 12

What factors do courts consider when determining whether to veil pierce?

Answer 12

1. undercapitlization
2. Lack of formalities
3. Commingling
4. One person entities
5. Using entity for fraud, injustice, illegal shit

Question 13

Factors for veil piercing?

Answer 13

1. Undercapitilization
2. lack of formalities
3. commingling
4. illegal shit
5. one person entity [Nelson v. Adams]
6. Same boards across entity structures [US v. Bestfoods]

Question 14

T/F) The “formality” requirement is required for all entities to avoid veil piercing.

Answer 14

False. Not LPs, Partnerships, and LLCs.

Question 15

T/F) Failure of an LLC to observe “formalities” relating to the exercise of its powers or management of its activities…. is grounds for imposing VP liability.

Answer 15

This is not the only factor considered, so it is False. Also, Partnerships, LPs, and LLCs exempt from formality requirement.

Question 16

Is “undercapitilization” a big enough factor, when standing ALONE, to go after entitiy for veil piercing?

Answer 16

Not alone, no.

Question 17

2 types of commingling?

Answer 17

1. Mixing with records
2. Mixing without records

Question 18

Is it appropriate for directors of a parent corporation to serve as directors of its subsidiary?

Answer 18

Yes. [US v. Bestfoods] “That fact alone may not serve to expose parent for liability of its subsidiary acts.”

Question 19

ROL: Directors of P serving as directors of SS is not enough, by itself, to manifest veil piercing.

Answer 19

US v. Bestfoods

Question 20

ROL: “One-person corporations are authorized by law and should not lightly be labeled SHAM.”

Answer 20

Nelson v. Adams USA

Question 21

What case said that one-person entities are legitimate.

Answer 21

Nelson v. Adams

Question 22

According to [Nelson v. Adams], entities like SP are legit. So how to get after them in terms of Veil piercing ?

Answer 22

Look for lack of formalities, fraud, illegal shit.

Question 23

Is it appropriate for B.O.D.s to meet sequentially for different aspects of entity business [diff. subsidiaries] when they serve on boards across all companies? [Kona Air 9.2]

Answer 23

Yes this is fine. Remember, US v. Bestfoods said this ok, alone not enough to VP.

Question 24

Limited liability and veil piercing are heavily strategized areas of the law. What are those strategies?

Answer 24

1. Judgement-proofing
2. Public companies
3. Entity contracting
4. obtaining J

Question 25

____ ____: Structuring a business so it appears to have no valuable assets.

Answer 25

Judgement proofing

Question 26

T/F) Public companies highly protected from corporate veil b/c heavily regulated, have many SHs, and operate with formalities.

Answer 26

True

Question 27

T/F) VP is very rare for public companies.

Answer 27

True

Question 28

Entity _______ : Carefully structuring Ks between related entities to manage / limit liability.

Answer 28

Entity contracting

Question 29

_____ ___ refers to someone who benefits from ownership of a company, even if their name isn't officially on paper as the legal owner

Answer 29

Equitable ownership

Question 30

T/F) If someone is not the "legal owner" a court may still treat them as an equitable owner and hold them liable if they are running the show.

Answer 30

True. Equitable ownership [Swenson v. Bushman]

Question 31

1. Equitable ownership case? 2. SP case? "One person entities not a sham automatically." 3. Veil Pierce case? 4. A & A case?

Answer 31

1. Swenson v. Bushman 2. Nelson v. Adams 3. Folgers v. Cottle 4. Wolf v. Liberis

Question 32

_____ Veil piercing is holding the entity liable for the investors debts.

Answer 32

Reverse veil piercing

Question 33

1. If the investors initiate the pierce, it is _____ reverse veil piercing.

Answer 33

Inside RVP

Question 34

1. If the investors creditors initiated the pierce, it is _____ RVP.

Answer 34

Outside RVP

Question 35

Factors for RVP?

Answer 35

Same as VP. The 2 prong test. 1. Entity and investors not distinct / separate 2. Recognizing as entity would create fraud / injustice

Question 36

[Analogy] ______ VP is like trying to get into a castle someone is hiding in. ______ VP is like dragging treasure out the castle because they owe you money.

Answer 36

1. Traditional VP 2. Reverse VP

Question 37

___ ____ liability: [Not the law in the US] "All entities that are part of the business enterprise are liable for the debts of the enterprise.

Answer 37

Traditional enterprise liability

Question 38

VP moves up while Enterprise liability moves side to side, allowing you to reach any entity that is part of the business. [T/F]

Answer 38

True

Question 39

Modern view of EL?

Answer 39

1. Entities part of same enterprise and; 2. VP requirements met [other than ownership]

Question 40

T/F) EL is another way of thinking about agency.

Answer 40

True. An entity can be the "agent" of its investors. A corporation can be the agent of its SHs. Subsidiary can be agent of parent.

Question 41

Entity may only ratify an act when?

Answer 41

When actor purported to act on their behalf.

Question 42

Ratification not effective unless what?

Answer 42

Unless it precedes the occurrence of circumstances that would cause the ratification to have adverse effects on 3rd party.

Question 43

Elements of "aiding and abetting?"

Answer 43

1. Tortfeasor commits wrong acts 2. Abettor knowingly helps

Question 44

Case for Aiding and abetting?

Answer 44

Wolf v. Liberis

Question 45

Aiding and abetting case?

Answer 45

Wolf v. liberis

Question 46

T/F) The association of 2 or more persons to carry on as co-owners of a business for profit forms a partnership, whether or not they intended to.

Answer 46

True!

Question 47

T/F) If Parent and Subsidiary are carrying on as co-owners of a business for profit, they are partners.

Answer 47

True!

Question 48

T/F) Both partners in partnership are liable for what the other partner does.

Answer 48

True