Assume the football team is set up as a C corporation and that Lenny, Sarah, and Sam are the shareholders. After setting up the corporation, no formalities of the corporation were kept. Lenny, Sarah and Sam all pay most of their personal bills out of corporate bank accounts. The team is sued for negligence because an individual who turned to see the quarterback running naked crashed her car, but the team does not have sufficient funds or insurance to cover the judgment. Which of the following is true?

A. Lenny, Sarah and Sam may be personally liable because the plaintiff may be able to pierce the corporate veil.

B. Lenny, Sarah and Sam may be personally liable because of the corporation by estoppels doctrine.

C. Lenny, Sarah and Sam may be personally liable because of the ultra vires doctrine.

D. Lenny, Sarah and Sam can never be personally liable because the team is set up as a corporation.

Question

Grant Leblanc

Business

30 June, 20:08

Assume the football team is set up as a C corporation and that Lenny, Sarah, and Sam are the shareholders. After setting up the corporation, no formalities of the corporation were kept. Lenny, Sarah and Sam all pay most of their personal bills out of corporate bank accounts. The team is sued for negligence because an individual who turned to see the quarterback running naked crashed her car, but the team does not have sufficient funds or insurance to cover the judgment. Which of the following is true?

A. Lenny, Sarah and Sam may be personally liable because the plaintiff may be able to pierce the corporate veil.

B. Lenny, Sarah and Sam may be personally liable because of the corporation by estoppels doctrine.

C. Lenny, Sarah and Sam may be personally liable because of the ultra vires doctrine.

D. Lenny, Sarah and Sam can never be personally liable because the team is set up as a corporation.

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Answers (1)

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Jocelyn · Answer 1

Option D is correct

Explanation:

The reason is that the company has its separate essence and legally recognised as a separate entity from its owners. Its just like you are legally recognized as separate person from your family and you are liable for the things you do, not your family. Their was a case in UK, a person registered a separate company and that company posseses a plane which the owner insured and used to pay its insurance contribution. Later, he legally transferred the ownership of the airplane to his name. Due to an accident, the claim for the repair and maintenance was sent to the insurance entity. Now the insurance company said why would I pay you the amount when the asset is not legally owned by the company. The owner filed the case and the court said that the insurance company is right because the claim is only valid till the ownership is not changed and this case the ownership has been changed because the company is a separate company.