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    Legal Issues - Lawn Care Scenario

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    The question presents one or more legal issues. State each legal issue briefly, state the pertinent rule of law and explain how the rule applies.

    Scenario

    Using forms he downloaded from the Internet, Fred Fescue incorporates his lawn care business. He and his wife are the sole directors. He capitalizes Fredcorp with his lawn care equipment and his '83 Ford pickup, all of which he values at $50,000. He takes a salary from Fredcorp and charges most of his personal living expenses to the corporation. On the advice of one of his lodge brothers, Fred signs an IOU to Fredcorp whenever he charges personal expenses. On the way home after a long, wet evening at the lodge hall, Fred drives the pickup through the display window of Hank's Haberdashery, causing $20,000 in damages. Hank files suit against Fredcorp, but his attorney learns the corporation's assets - a wrecked pickup, an old riding mower, a leaf blower and $30,000 in IOU's - are virtually worthless, and Fredcorp has no insurance. "I'm afraid suing Fredcorp is a waste of time," the lawyer says. "But Fred's wife drives a brand new Mercedes!" Hank protests. How can Hank recover his losses?

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    Solution Preview

    Legal Issue
    A well-incorporated and well-run company can limit the personal liability of its shareholders. Corporate assets may be at risk, but personal assets will generally be treated as separate. However, keep in mind that the Court does not automatically remove liability for criminal and negligent acts on the part of the company's officers, directors and shareholders.
    If Hank can show negligence on Fred's part, he may be able to recover his losses. Hank may also want to call for an examination of Fred's ...

    Solution Summary

    Legal Issue
    A well-incorporated and well-run company can limit the personal liability of its shareholders. Corporate assets may be at risk, but personal assets will generally be treated as separate. However, keep in mind that the Court does not automatically remove liability for criminal and negligent acts on the part of the company's officers, directors and shareholders.

    $2.19

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