A. In what instances might a court disregard the corporate entity and hold an in

Question

A. In what instances might a court disregard the corporate entity and hold an individual shareholder liable?

B. Recommend two other types of business forms that would provide protection from personal liability. Explain the basis for your recommendations.

C. If you were the sole shareholder of a corporation and a plaintiff sued your corporation, do you believe you would have an ethical obligation to provide personal assets in satisfaction of the plaintiff’s demands if the assets of the corporation were insufficient?

obligations holder for a corp CASE 36.1 1 STATE COURT CASE Shareholder's Limited Liability Menendez v. O'Niell 986 So.2d 255 (2008) Court of Appeal of Louisiana Issue "As a general rule, a corporation is a distinct legal is the sole shareholde entity, separate from the individuals who comprise Is Fraioli personally liable for the dehts a corporation of which he is the sole them, and individual shareholders are not liable for the debts of the corporation." Language of the Court a general rule, corporation is a d legal entity, separate from the individu -Welch, Judge net comprise them, and individual are not Facts 1 vehicle driven by Michael O'Niell crashed while liable for the debts of the uulreholde traveling on Louisiana Highway 30. Vanessa Savoy, a Mr Fraioli met his burden of provi 19-year-old guest passenger in the vehicle, sustaine severe injuries as a result of the collision. O'Niell, who virate's corporate existence. Plaintiff st' was under the legal drinking age, had been drinking ofer any evidence identified by law as ind at Fred's Bar and Grill prior to the accident. Fred's that Mr:. Fraioli and Triumvirate are n Bar is owned by Triumvirate of Baton Rouge, Inc., a ally separate entities. The involvement o corporation. Mare Fraioli is the sole shareholder and or majority shareholder in a corporation is not president of Triumvirate. Fraioli was not at Fred's sufficient alone, as a matter of law, t o esta bl Bar the night that O'Niell was served alcohol at the a basis for disregarding the corporate ent bar. Savoy, through a legal representative, brought a lawsuit against O'Niell, O'Niell's automobile in- Decision surance company, Triumvirate, and Fraioli seeking The court of appeal held that Fraioli was not person damages for her injuries. Savoy alleged that O'Niell ally liable for the debts of the Triumvirate corpora- was intoxicated at the time of the accident and that tion of which he was the sole shareholder. The cout his drinking caused the collision. Savoy alleged that of appeal affirmed the trial court's grant of summary Triumvirate corporation was liable for serving ONiell judgment dismissing Fraioli from the case alcohol when he was underage and that Fraioli was liable as the owner of Triumvirate. Fraioli filed a motion for summary judgment as serting that, as the shareholder of Triumvirate, he was Whatr not liable for the corporation's debts. The trial court his granted summary judgment to Fraioli and dismissed propr him as a defendant in the case. Savoy appealed Ethics Questions easons could there be for Fraioli to operate business as a corporation rather than as a sole ietorship? Was it ethical for Fraioli to assert corporate shield to avoid liability in this case

Explanation / Answer

1. Generally as per the law the stake holders of the corporation is not responsible for the liabilities of the corporation. The situation in which the stake holders, owners or the managers become liable is when the court pierces the corporate veil. By doing this the court separates the corporation from the owners and the corporate exemption of law becomes invalid. The court performs such action when the corporate fails to maintain the corporate records to highlight it as a corporate.

2. As the corporate business forms provide protection to the stakeholders there are other business forms which can provide protection.

3. When considering the ethical facts the sole stake holder of the corporation can provide the amount based on his interest to satisfy the injured. But when the financial status of the corporate is in damage then it is not necessary for the stake holder to help or support the injured when there is no fault from his part.

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