Question 1:
Under what three circumstances will a court decide to pierce the corporate veil?
While there are many circumstances that influence a court’s decision to pierce the corporate veil, the most common instances can be narrowed down to (1) the failure of observing corporate formalities, (2) promotion of fraud and misrepresentation, and (3) promotion of bankruptcy values (Macey, 2014). First, piercing the corporate veil is most often used as a tool to uphold statutory corporate formalities. It ensures that corporations are conducting mandatory meetings and are following proper statutory guidelines. It reinforces that shareholders are in fact held as a separate entity with the absence of conflict of interests. Second, piercing will also be used in order to remedy fraudulent misconduct, specifically “constructive fraud” that serves to disrupt the corporations’ legal contractual obligations …show more content…
However, the plaintiff’s claim of negligent misrepresentation was not granted, along with the individual allegations issued by Marc Heiden. The court found that G&H business plan and profit projections were substantive enough to recover damages and were closely tied to the reputation and trade name of the company. Negligent misrepresentation nevertheless, was not applied to this case because it was found that the tort of negligence does not apply to cases concerning retailers servicing their merchandise (4). Marc Heiden’s claims were dismissed since he failed to prove that the defendants breach of contract personally affected him in the same manner it affected the corporation. Heiden did not have an individual or special contract with the plaintiff and according to Iowa law, shareholders have no right to seek damages against third parties unless it pertains to a derivative action suit
Under what three circumstances will a court decide to pierce the corporate veil?
While there are many circumstances that influence a court’s decision to pierce the corporate veil, the most common instances can be narrowed down to (1) the failure of observing corporate formalities, (2) promotion of fraud and misrepresentation, and (3) promotion of bankruptcy values (Macey, 2014). First, piercing the corporate veil is most often used as a tool to uphold statutory corporate formalities. It ensures that corporations are conducting mandatory meetings and are following proper statutory guidelines. It reinforces that shareholders are in fact held as a separate entity with the absence of conflict of interests. Second, piercing will also be used in order to remedy fraudulent misconduct, specifically “constructive fraud” that serves to disrupt the corporations’ legal contractual obligations …show more content…
However, the plaintiff’s claim of negligent misrepresentation was not granted, along with the individual allegations issued by Marc Heiden. The court found that G&H business plan and profit projections were substantive enough to recover damages and were closely tied to the reputation and trade name of the company. Negligent misrepresentation nevertheless, was not applied to this case because it was found that the tort of negligence does not apply to cases concerning retailers servicing their merchandise (4). Marc Heiden’s claims were dismissed since he failed to prove that the defendants breach of contract personally affected him in the same manner it affected the corporation. Heiden did not have an individual or special contract with the plaintiff and according to Iowa law, shareholders have no right to seek damages against third parties unless it pertains to a derivative action suit