Disregarding the Corporate Entity

Question 1

Types of creditors that wish to pierce the corporate veil

Answer 1

1. Contract - voluntary creditor

2. Tort - involuntary creditor

Question 2

Piercing is permitted only to:

Answer 2

1. Prevent fraud or achieve equality

There must be fraud or intent to mislead & inherent unfairness

Question 3

Factors to consider w.r.t. piercing

Answer 3

1. Close corporation (no public traded corps ever)
2. Fraud
3. Gross undercapitalization (lack of liability insurance; but must be way under insured / capitalized)
4. Failure to observe corporate formalities
5. Siphoning or intermingling of corp. funds by individual
6. Oral personal guarantee for debts of corp.
7. Single dominant shareholder

Question 4

Can pierce a parent-subsidy relationship if

Answer 4

1. Operate as single economic unit

2. Unfairness would result if not pierced

Question 5

Choice of law for piercing the corporate veil

Answer 5

1. Contract - state of incorporation

2. Not as clear, maybe state of tort maybe of incorp.

Question 6

Liability of directors of corporate tort

Answer 6

1. No liability unless

2. Knowing order to commit intentional tort