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The Necessity Of Piercing The Corporate Veil
The Necessity Of Piercing The Corporate Veil
The Necessity Of Piercing The Corporate Veil
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The ethical dimension: Should the Brennan brothers he held personally liable, because they mislead their attorney? Why or why not?
The benefits of a corporation The pierce corporate veil is exposing the shareholders to personal liabilities{RMBCA}. Brennan’s Inc. is a family owned restaurant that has family members as owners and shareholders. The court case involves a dispute with another family member. The corporation is the legal entity and it separates individuals who comprise; therefore, protecting the shareholders from personal liabilities. However, you can pierce the corporate veil:
1. A party is deceived or misinform into dealing with the corporation rather than the individual.
2. The corporation is established at no time to make a profit or always to be in debt or thinly capitalized with insufficient capital to meet current financial obligation
3. The corporation is for to avoid an existing obligation
4.
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Statutory corporate formalities, such as holding meetings required by the corporation
5. Personal and corporate interests are mixed together, or comingled. In this case, these are the factors the Brennan’s failed to hold corporate meeting and take minute notes, statutory corporate formalities. As a result, they pierce the corporate veil.
The Economic Dimension: Do corporations benefit from shareholders limited liability if so how? For example, the company should obtain insurance, and if the company is sued the defendant is not held liable. If someone sues the insurance company is held liable. The law firm argued that court should pierce the business veil, because did not observe corporate formality, and because Brennan brothers did not honor their promises to pay their legal bills. Generally, shareholders are not personally liable for corporate acts.
Case 19-7
Distinct legal entity separates from individuals who compose it, thus insulating the shareholder from personal liabilities. Generally, shareholders are not personally liable for corporate
Corporation – “A business organization that exists as a legal entity and provides limited liability to its owners.” (Longenecker, Petty, Palich, Hoy, Pg. 205) The main advantage of a corporation is that the business liability falls onto this entity instead of the individuals that own it. The disadvantages of this organization are found mostly in its formation. A corporation is expensive to create and requires compliance with state
A nice advantage to owning a S corporation is that it is limited liability which means that the owner/owners of the company
Liability – The business has limited liability. The owners and shareholders are generally protected from most lawsuits.
This means that those who invest capital cannot be found liable for more than they have ventured; should the company fail or be sued. This also means that corporations can be afforded similar rights and obligations as those enjoyed by groups of persons. These include ability to contract and enforce contracts, to own property, to sue and be sued under both criminal and civil laws. And further that corporations can be continued in perpetuity with shares and control transferred accordingly. Ultimately corporations are provided rights and given respect similar to persons. As such, it is completely reasonable in my view for employees to feel loyalty and respect for the organization and place of their daily work; in addition to the loyalty they feel toward their fellow coworkers. This is the natural basis of the collective sense of loyalty. And why I must agree with James Roche of General Motors, and view whistle-blowers as disloyal and detrimental to work place cohesion and
The main legal issue before the court arises, in determining whether liability should be extended to reach assets beyond those belonging to the corporation and whether the corporate veil should be pierced with regard to personal liability to others.
A corporation was originally designed to allow for the forming of a group to get a single project done, after which it would be disbanded. At the end of the Civil War, the 14th amendment was passed in order to protect the rights of former slaves. At this point, corporate lawyers worked to define a corporation as a “person,” granting them the right to life, liberty and property. Ever since this distinction was made, corporations have become bigger and bigger, controlling many aspects of the economy and the lives of Americans. Corporations are not good for America because they outsource jobs, they lie and deceive, and they knowingly make and sell products that can harm people and animals, all in order to raise profits.
This particular statute allows for corporations and such to obtain several, but not all, constitutional rights as any person or persons. In particularly own property, sue and be sued under criminal and civil law, enter contests. Moreover, because corporations and such are considerate as “person”, business has the legal rights for its debts and damages. On the contrary, persons who are employed by a particular association are liable for their own misconduct and law-breaking while acting on behalf of a corporation. In addition, corporation has rights for its own actions, has rights such as: limited free speech and to advertise their product ("The Rights of Corporations," 2009). Likewise, businesses have the responsibility to elect a CEO, provide continuity; increase profits, social responsibilities, and manages recourses effectively (“Functions & Responsibilities of a Corporation").
The Adelphia Communications Scandal in 2002 dominated the corporate mainstream when the company’s management prepared financial statements that failed to represent the economic reality of the company by excluding billions of dollars of debt. The Securities and Exchange Commission (SEC) calls the case “one of the most extensive financial frauds ever to take place at a public company” (Markon & Frank, 2002). At the center of the case is John Rigas, the founder, former chairman, chief executive of the company and the patriarch of the Rigas family. Also arrested are his sons, Timothy and Michael, both former executive board members, James R. Brown, former Vice President of Finance, and Michael C. Mulcahey, former Director of Internal Reporting. The lawsuit filed by th...
The doctrine of limited liability as it relates to corporate law is central to the principle that a company upon incorporation assumes a corporate personality independent of its members. This means that a new legal person is created at law and accordingly has its own assets, liabilities and rights, inter alia, to enter into and be bound by its own contracts.
In company law, registered companies are complicated with the concepts of separate legal personality as the courts do not have a definite rule on when to lift the corporate veil. The concept of ‘Separate legal personality’ is created under the Companies Act 1862 and the significance of this concept is being recognized in the Companies Act 2006 nowadays. In order to avoid personal liability, it assures that individuals are sanctioned to incorporate companies to separate their business and personal affairs. The ‘separate legal personality’ principle was further reaffirmed in the courts through the decision of Salomon v Salomon & Co Ltd. , and it sets the rock in which our company law rests which stated that the legal entity distinct from its
A corporation is an association of people coming together and bound under a law, and their existence is independent of the existence of its members (Bakan, 2004). Corporate power, therefore, refers to the powers awarded to the members to make laws by which businesses are operated and regulated. The corporation is charged with the responsibility to conduct business practices while safeguarding the interests of the people. However, this expectation fell short when the members of big corporations used their power to wield financial power to themselves without considering the society. Corporations are divided into two main classes. There were the classic corporations which existed before 1860 (Jensen, 2001). These corporations were closely regulated by the governments and their growth limited. The second class of corporations emerged after 1900 and is the modern corporations (Jensen, 2001). These have been governed by making profits and dominating in the world, despite the harm they cause. The modern corporation has been impossible to regulate as some of them wield more financial power compared to a whole country. Their adaptability has been favored by ewer legal constraints and laws that have enabled them to consolidate.
According to Corporation Act 2001 s124(1), it illustrates that ‘’A company has the legal capacity and powers of an individual both in and outside the jurisdiction” . As it were, company as a legal individual must be freely with all its capital contribution shall embrace liability for its legal actions and obligations of the company’s shareholders is limited to its investment to the company. This ‘separate legal entity’ principle was established in the case of Salomon v Salomon & Co Ltd [1987] as company was held to have conducted the business as a legal person and separate from its members. It demonstrated that the debt of company is belonged to the company but not to the shareholders. Shareholders have only right to participate in managing but not in sharing the company property. Besides ,the Macaura v Northern Assurance Co Ltd [1925] demonstrates that the distinction between the shareholders and company assets. It means that even Mr Macaura owned almost all the shares in the company, he had no insurable interest in the company’s asset. The other recent case is the Lee v Lee’s Air Farming Ltd [1961] which illustrates that the distinct legal entities between employee ad director allows Mr.Lee function in dual capacities. It resulted that the corporation can contract with the controlling member of the corporation.
He goes on to explain how they are treated as completely separate from the companies in which they hold shares and receive dividends yet they are not responsible for the company’s debts or liabilities. Furthermore, the companies in which the hold shares must be run in their best interests. Therefore, the interests of the company, which is a separate legal entity, is directly linked with those of the shareholders. “The law treats separate legal personality very seriously in some contexts (shareholders liabilities) while ignoring it in others (shareholder primacy, shareholder control rights).
As a result, a company is able to have its own rights and obligations separate from its directors or shareholders. A further effect is that the company is solely responsible for its legal obligations. Therefore, the directors and shareholders are not liable for the debts of the company. However, with liberty comes the propensity for misuse and the benefits which a separate legal personality produces may be subject to abuse. Thus, a mechanism had to be created whereby those behind the company could be revealed so as to expose any guilty
In corporate law a company is considered to be a separate legal entity. The law sees the company as being separate from those who manage it. According to the law a company owns its own properties. The companies properties do not belong to the owners and those who manage it, which makes it a separate legal entity from its owners. Therefore if a corporation is considered to be it’s own separate person whenever it is involved in any legal action. According to an online business dictionary, separate leg...