Q1. Eric incorporated Viking with an initial capital of $3,000. Eric also made a $7,000 loan to Viking. Viking had as assets 65 lots of land held for development, which lots cost $430,000. Viking became unable to pay its creditors, who sought to pierce the corporate veil and hold Eric liable. Were the creditors successful?
Q2. A group of stockholders of Ono Development Co. and Ono East, Inc., brought suit, on behalf of themselves and the other stockholders of the corporations, and derivatively, on behalf of the corporations, against Pannell Kerr Forster, an accounting firm, and two of its employees (the defendants) to recover damages for breach of contract and fraud. The stockholders alleged that the defendants had failed to disclose in annual audits of the corporations' books that certain commissions were being improperly paid to, and by, three of the corporation's principal officers and directors. As a result, the corporations had been deprived of the use of large sums of money over an approximate ten-year period. While the action was pending, the plaintiff stockholders all sold their stock back to the corporations. The defendants argued that the stockholders lacked standing to sue the corporations either on their own behalf or on behalf of the corporations. What should the court decide, and why?
1 -- In this case, Eric has formed a corporation (we are assuming it is a C or closely held corporation). The initial investment is $3,000. Eric makes a loan to the corp. There is nothing imminently wrong or illegal about loaning money to a corporation. If the corp. does not have the needed funds, owners oftentimes make loans to the corp. As long as the loan is recorded on the books of the corporation and there is a clear separation and proper recording of the loan, the loan is not an issue. The corp. has assets that include 65 lots of land that are being held for development, which cost $430,000 to the corp. The Corp. now cannot pay its creditors (we assume the $430,000 for the lots of land). The creditors want to pierce the corporate veil. Are they successful?
Based on the limited information that we have, they will be successful. I don't recall this as being an actual case and we have very limited ...
This solution thoroughly discusses the business law case studies presented.