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ivolga24 [154]
3 years ago
5

Read and compare the following two scenarios. Explain why the court should or should not pierce the corporate veil in each scena

rio. Smith Services, Inc., a trucking business owned by Tony Smith, charged its fuel purchases to an account at Laker Express. When Smith Services was not paid on several contracts, it ceased doing business and was dissolved. Smith continued to provide trucking services, however, as a sole proprietor. Laker Express sought to recover Smith Services’ unpaid fuel charges, which amounted to about $35,000, from Smith. He argued that he was not personally liable for a corporate debt. Should the court pierce the corporate veil? Country Contractors, Inc., contracted to provide excavation services for A Westside Storage of Indianapolis, Inc., but did not complete the job and later filed for bankruptcy. Stephen Songer and Jahn Songer were Country’s sole shareholders. The Songers had not misused the corporate form to engage in fraud. The firm had not been undercapitalized, personal and corporate funds had not been commingled, and Country had kept accounting records and minutes of its annual board meetings. Are the Songers personally liable for Country’s failure to complete its contract?
Business
1 answer:
Sunny_sXe [5.5K]3 years ago
5 0

Answer:

Piercing the Corporate Veil:

1. Smith Services, Inc. and Laker Express:  With the given facts, Smith Services is still in operation by the alter ego, since Smith - the sole owner, has continued to provide trucking services.  Smith should be able to pay for the debts it owed Laker Express.  The question is: why was Smith Services, Inc. dissolved in the first place when the sole owner could continue privately to do the same business?  Is there element of fraud involved, or was it trying to avoid its obligations?  It seems that the dissolution was an effort to avoid liabilities and not because of impaired ability to operate the business because its own debtors did not pay for services on several contracts.  Another question is: during the dissolution or liquidation of Smith Services, Inc. were other creditors not settled and where was Laker Express then?

However, it appears that the dissolution was just to avoid liability, especially the $35,000 debt owed to Laker Express for fuel purchases.

Therefore, in this situation where it seems that the corporate form is ignored, commingling of assets exists, and that Smith Services, Inc. is an instrumentality for Tony Smith, I will advise that the corporate veil be lifted.  Tony Smith should be held liable for the business debts of Smith Services, Inc. because he has continued to use the assets of Smith Services, Inc. to run a sole proprietorship in the same line of business.  However, recourse must be had to the State laws on piercing the corporate veil.

2. Country Contractors, Inc. & Westside Storage of Indianapolis:

Since Country Contractors, Inc and the Westside Storage are based in Indiana, the decision to pierce the corporate veil should be based on the eight factors that are applicable for piercing the veil:  They include: undercapitalization;  absence of corporate records;  fraudulent representation by corporation shareholders or directors;  use of the corporation to promote fraud, injustice or illegal activities;  payment by the corporation of individual obligations;  commingling of assets and affairs;  failure to observe required corporate formalities; or  other shareholder acts or conduct ignoring, controlling, or manipulating the corporate form.

But, the facts in this case do not support that any of the factors had been breached.

So, I do not support that Songers are personally liable for Country's failure to complete its contract.

Explanation:

The corporate veil is an important instrument for protecting shareholders of corporations from being held liable for the liabilities of the corporation in their individual and personal capacities.  Corporate veil ensures that the entity is treated as a separate entity from its shareholders.  It is a protection offered by law to encourage private enterprise and ensure that the debts of corporate bodies are not tagged to the individual shareholders.  It is this veil that ensures the limited liability concept, whereby, the shareholders could only lose their capital contributions in case of business failure or dissolution.

Piercing the corporate veil is a court decision to lift the veil that separates the shareholders of corporation from their shareholders.  There are special factors that must be met for courts to pierce the corporate veil and they do it reluctantly.

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Answer:

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7 0
2 years ago
John Porter is an hourly employee of Motter Company located in New York City. This week, Porter had to travel to the company's r
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Answer:

1. Overtime rate is $20.175

2. Total earnings are $699.4

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1. OT rate - Overtime is typically paid at a rate of 1.5 times the normal hourly rate

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OT rate = $20.175

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Total earnings                                                   <u>$699.4</u>

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How can a country achieve higher levels of competition and a variety of products in an industry with only one or two domestic fi
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5 0
2 years ago
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annua
kolbaska11 [484]

Answer:

Price of bond = $ 924.50

Explanation:

<em>The value of the bond is the present value(PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV).  </em>

Value of Bond = PV of interest + PV of RV  

The price of the bond can be worked out as follows:  

Step 1  

PV of interest payments  

annul interest payment = 6.4 % × 1,000 = 64

Annual yield = 7.5%

Total period to maturity (in years) =10

PV of interest =  

64 × (1- (1.075)^(-10)/)/0.075= 439.30

Step 2  

PV of Redemption Value  

= 1,000× (1.075)^(-10) =   485.19

Step 3

Price of bond  

439.30 + 485.19 =$924.49

Price of bond = $ 924.50

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Answer:

The answer is B. I think.

Explanation:

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3 years ago
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