Grace Owen formed a corporation with three of her friends for purposes of operating a catering company. Grace used her own checking account to deposit the client payments and to make distributions of the corporation's profits to her three friends, who together owned 50% of the shares, with Grace owning the remainder of the shares. Grace promised her friends "no meetings, no formalities, we'll just run the catering business." Several wedding guests at a reception Grace's company catered became ill. Grace had not purchased insurance. The guests brought suit to recover their medical bills and other damages from Grace and her three friends. Grace says she has no personal liability for the bad food that resulted in their illness.

Question

Tori Glenn

Business

19 March, 00:31

Grace Owen formed a corporation with three of her friends for purposes of operating a catering company. Grace used her own checking account to deposit the client payments and to make distributions of the corporation's profits to her three friends, who together owned 50% of the shares, with Grace owning the remainder of the shares. Grace promised her friends "no meetings, no formalities, we'll just run the catering business." Several wedding guests at a reception Grace's company catered became ill. Grace had not purchased insurance. The guests brought suit to recover their medical bills and other damages from Grace and her three friends. Grace says she has no personal liability for the bad food that resulted in their illness.

+5

Answers (1)

Know the Answer?

Eli Kline · Answer 1

Grace is incorrect because of the veil and alter ego theory

Explanation:

In this scenario Grace formed a corporation along with her three friends. As a result of catering services offered guest became ill and sued Grace and the other owners for damages.

According to the alter egos theory personal liability can be invoked on the owners of a corporation or its limited liability members.

Alter ego theory is used to penetrate the corporate veil that protects shareholders. Personal liability can be assigned on the business owner as it is in this case against Grace and the other owners.