Smith Services, Inc., was a trucking company established in 2000 and owned by To

Question

Smith Services, Inc., was a trucking company established in 2000 and owned by Tony Smith as the sole shareholder. Smith Services, Inc., had an account with Laker Express, a fuel provider, and often would charge fuel purchases for the company trucks to that account. Smith's employees would fuel their vehicles and sign the account slip with a notation that the purchase was for Smith Services, Inc. Laker Express would bill Smith Services regularly for the charges on the account. After several months of low business, Smith Services ceased doing business and was dissolved in 2013, with its assets being distributed to creditors. Laker Express only recovered a small part of the amount owed by Smith Services, Ine. Tony Smith then opened up a new trucking service business 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 a court hold Tony Smith personally liable? 1. Smith Services, Inc. was a (corporation, partnership, limited liability company) 2. A business of this type (is, is not)considered a separate legal entity from its owners 3. When Smith Services, Inc., set up an account with Laker Express (Tony Smith, Laker Express, Smith Services, Inc.) would be liable for any charges on that account. . When Smith Services, Inc. dissolved, it apparently (did, did not) owe money to creditors. 5. Laker Express (was, was not a creditor) and (was,was not) able to recover the amount owed from Smith Services, Inc. 6. Tony Smith (was,was not) a shareholder in Smith Services, Inc. 7. One of the advantages of being a shareholder in a corporation is the (limited, unlimited) liability of 8. The principle of limited shareholder liability means that shareholders are not personally liable for the debts of the corporation beyond (their investment in the corporation, their personal net worth). 9. If Smith Services, Inc., was dissolved, and assets were distributed, then Tony Smith likely (lost,earned) the value of his investment. 10. Tony Smith (might, would not) have had assets outside of the company that he would have been allowed to keep when the company was dissolved. 11. If Laker Express is attempting to receive payment from the extra assets of a shareholder, it would be asking the court to (pierce the corporate veil, declare an ultra vires act, revoke the corporation's 12. Courts will ignore the corporate structure and make the shareholder-owners personally liable when the corporate structure is (used, abused) for personal benefit or when the corporate form is (distinguishable, indistinguishable) from the controlling shareholder. 13. In this situation, it (appears, does not appear) that Laker Express was tricked into dealing with the corporation instead of the individual. 14. Given the life of the corporation, (appears, does not appear) that the corporation was set up to always be insolvent, or was undercapitalized. It also (appears does not appear)that the corporation was formed to evade a legal obligation. 15. There (is, is no evidence) that the corporate formalities were not followed and there Selectisis noltem 2 evidence that Tony Smith commingled funds. 16. Given these facts, a court (should,should not) pierce the veil of Smith Services, Inc., and hold Tony Smith personally responsible for the debt.

Explanation / Answer

Smith Services Inc. was a limited liability company. A business of this type is not considered a separate legal entity from its owners. When Smith Services, Inc., set up an account with Laker Express, Smith Services, Inc. would be liable for any charges on that account. When Smith Services, Inc. dissolved, it apparently did owe money to creditors. The Kentucky Revised Statute KRS 271B establishes that if a corporation is dissolved and it gives notice to its creditors, then the claim of the creditor may be extinguished in 120 days from the date of notice. Laker Express was a creditor and was not able to recover the amount owed from Smith Services, Inc. Laker Express was a fuel provider to Smith Services trucks and hence was a creditor. Tony Smith was a shareholder in Smith Services, Inc. One of the advantages of being a shareholder in a corporation is the limited liability of shareholders. The principle of limited shareholder liability means that shareholders are not personally liable for the debts of the corporation beyond their investment in the corporation.

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