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Legal Problems and Unpaid Creditors

Frank Pierce is the sole stockholder and director of Ajax, Inc., a construction company in Anytown, U.S.A. Times are getting tough, and Frank is worried about his finances. He is mostly worried about keeping up the mortgage payments on his relatively new home that he purchased during the housing boom. The house, which is titled in his name, was a wedding present to his new wife. After sitting in his office for two weeks, with no telephone calls for new business, Frank decides to close up shop. He closes the corporate bank account, which has $30,000.00 in it, and deposits the money into a bank account in his name and in the name of his wife. He talks another construction company into purchasing the corporation's equipment and tools and gives that money, about $10,000.00, to his wife as an anniversary present. Three months later, while browsing the internet, he sees that Ajax, Inc. is being sued by several unpaid creditors. He shrugs and is unconcerned. He knows that he has protection from personal liability because of the corporate status. Should Frank be as unconcerned as he is? Might he have some legal problems personally from the unpaid creditors? Why or why not? Give the reasons for your answer.

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Unfortunately, Frank Pierce is wrong on his unconcerned as regard the presence of protection of his personal liabilities from the creditors of Ajax, Inc. ...

Solution Summary

This solution discusses a problem involving legal problems and unpaid creditors.