Clark_11e-AM-Ch38.doc

Clark_11e-AM-Ch38.doc - CHAPTER 38 CORPORATIONSFORMATION...

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299 C HAPTER 38 C ORPORATIONS —F ORMATION AND F INANCING A NSWERS TO Q UESTIONS AT THE E NDS OF THE C ASES C ASE 38.1—(P AGE 776) W HAT I F THE F ACTS W ERE D IFFERENT ? If Gauthier had been an independent contractor rather than Angelo’s employee, would the result in this case have been different? Explain. Possibly but probably not. Generally, an employer is not responsible for physical harm to others caused by the tortious act of an independent contractor, because the employer does not have the right to control the independent contractor’s performance to the same degree as an employee’s. There are exceptions for hazardous activities, however, and an employer may be liable for criminal acts in some circumstances. Important considerations include the nature of the act, the extent of the harm, and the relative ability of the parties to bear the costs. T HE L EGAL E NVIRONMENT D IMENSION Under what circumstances might an employee’s supervisor, or even a corporate officer or director, be held liable for the employee’s crime? A supervisor, or a corporate officer or director, could be held liable for an employee’s crime if the corporate official ordered or otherwise authorized the crime. Directing an employee to dispose of hazardous waste in an illegal manner, for example, or approving of questionable accounting practices, would support criminal sanctions against a supervisor or other corporate party. C ASE 38.2—Q UESTIONS (P AGE 780) 1A. What is the relationship between NAC and its shareholders, and how is that relationship different from the usual relationship between a corporation and its shareholders? The shareholders in NAC did not, as shareholders traditionally have done, only provide capital to fund a business entity to pursue an independent existence. Instead, they created the NAC to have it act as their agent. It was designed to serve the operational needs of the two shareholders’ pre-existing businesses (and only the needs of those busi- nesses). As the court stated, “Here the relationship between the shareholders and the cor- poration is that of principal and agent. And principals are subject to liability for the acts of their agents that are within the scope of the agent’s authority. The arrangement here is
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300 UNIT EIGHT: BUSINESS ORGANIZATIONS therefore starkly different from the one that shareholders enjoy in the usual relationship between shareholders and a corporation where shareholders are protected by limited liability.” 2A. The plaintiff in this case argued among other things that the stock transfer restriction was a “restraint on alienation (transfer of ownership),” constituting “an unreasonable incursion on the free flow of commerce.” How do the facts of this case show that this is not a valid argument? This case shows that the stock transfer restriction is not an obstacle to “the free flow of commerce,” because as the court explained, “Although legal title to the NAC shares has resided with [Kearns-Tribune LLC] or its
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Clark_11e-AM-Ch38.doc - CHAPTER 38 CORPORATIONSFORMATION...

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