Piercing The Veil

Front 1

What corporate privilege was abused in Minton?

Back 1

limited liability

Front 2

what are three factors that would support piercing the corporate veil?

Back 2

commingling, inadequate capitalization, active participation in corp. affairs

Front 3

what could have substituted for adequate capital and probably protected Cavaney from personal liability?

Back 3

insurance

Front 4

other than limited liability and insurance, what could have protected Cavaney from personal liability?

Back 4

indemnification - if company still had assets to pay a judgment against him

Front 5

if asked what the first 2 things a new corporate director needs to do, you would answer:

Back 5

ensure that 1) the director is covered by insurance and 2) the corporation will provide indemnification

Front 6

T or F: inadequate capitalization alone generally will be enough to pierce the corporate veil

Back 6

false - something more is usually required, such as active participation in management

Front 7

T or F: succesful piercing claims generally involve closely held businesses or shareholders that are entities

Back 7

true

Front 8

T or F: piercing claims virtually never succeed against individual shareholders of widely held firms

Back 8

true

Front 9

why might you advise a client to place assets of a single enterprise into multiple corporations?

Back 9

segregating the assets protects them against claims made against other entities

Front 10

what piercing risk may be created when assets are spread among multiple corporations?

Back 10

each corp. may be inadequately capitalized because their assets are spread among different entities

Front 11

a 100% shareholder of 2 corp. would prefer that

Back 11

one corporation to be found liable for the obligations of the other - the owner's personal assets include the stock of both corporations

Front 12

T or F: when an enterprise has many shareholders, liability can practically be limited by creating many independent entities

Back 12

false - would be too cumbersome with many shareholders

Front 13

when an enterprise has many shareholders, what structure can practically provide limited liability?

Back 13

a parent-subsidiary structure where the shareholders own interest only in the parent

Front 14

T or F: one benefit of the parent-subsidiary structure is that the veil can never be pierced

Back 14

false - the parent is like any shareholder, and the veil can be pierced to a parent/shareholder

Front 15

T or F: one benefit of the parent-subsidiary structure is that the veil can never be pierced to the parent's shareholder

Back 15

false - under the right facts, you can keep piercing through parent after parent and get to the ultimate shareholders, although unlikely that piercing will extend to a large number of natural person shareholders