SH liability

Question 1

Piercing - essay

Answer 1

• shareholders have limited liability, and are not liable for the debts or acts of the corporation
• however, shareholders can be personally liable if the court pierces the corporate veil
• piercing results if
• shareholders abused the privilege of incorporating and
• fairness requires holding them liable

`• generally, piercing is a high bar

Question 2

Common Piercing Scenarios

Answer 2

1. alter ego: failure to respect the separate corporate entity that harms creditors
   i. treating corporate assets as one’s own (co-mingling) and failure to follow formalities
2. undercapitalization: shareholders failed to invest enough or get insurance to cover reasonably foreseeable liabilities

Question 3

Piercing Factors

Answer 3

(1) close corporation (required as a practical matter)
- corporate form

(2) failure to follow corporate formalities

(4) SH actively participated in the business
- under capitalization or purposely avoiding foreseeable liability

(5) undercapitalization
(3) enterprise liability (separation of enterprises is artificial)

(6) insiders misrepresented solvency or misled creditor to believe he was protected
- other

(7) plaintiff is an involuntary (tort) creditor
(8) personal guarantees