In what four situations are shareholders liable?
- subscription agreements
- illegal distributions (that create insolvency or liabilities exceed assets)
- veil piercing
- estoppel
What is the main rule statement for piercing the corporate veil?
The corporate liability shield may be disregarded when: (1) the corporate form was a sham and was merely an “alter ego” of the shareholders and (2) it is necessary to impose personal liability to avoid injustice.
What are the factors for whether the corporate form was a sham and the corporate veil should be pierced?
- undercapitalization
- failure to observe corporate formalities
- non-payment of dividends
- insolvency at the time of the transaction
- siphoning of funds by the dominant shareholder
- non-functioning of other officers and directors
- absence of corporate records
- use of a corporate façade in individual dealings
What factors will allow for liability of concurrent affiliates (a parent company or a sister company)?
- commingling of assets
- shared office space, personnel, resources
- high level of integration
- cross-financing
When will successive affiliate companies will be liable?
Under the “de facto merger” doctrine, an affiliate successor is liable when it takes the assets and benefits of the bankrupt corporation such that the successor is a mere continuation of the bankrupt corporation.
What is the estoppel theory for recovery against individual shareholders?
If a shareholder intentionally misled a third party to believe the entity was a partnership, then the shareholder will be treated as a de facto partner and will be personally liable /
