BUSINESSLAW CHAPTER 45 - Business law

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MARCH 2009 BUSINESS LAW CHAPTER 45 DEBRA BARONE ANSWERS TO QUESTIONS AND CASE PROBLEMS 1. The court found in favor of the corporation. The Westons can not bring an action because they had no cause. 2. The court found in favor of Hubbard. Shareholders of a corporation may not maintain actions in their own names to redress an injury to the corporation even if the value of their stock is impaired as a result of the injury. They must bring action derivately because direct action would ignore the corporate entity, fail to protect the corporation from multiple lawsuits, and be unfair to the corporation’s creditors. Tomlinson, who is one of five shareholders, in his direct lawsuit would not protect other innocent shareholders. 3. Voting trusts. No. Shareholders may lawfully create voting trusts under which they transfer their individual shares to a trustee, who in turn exercises the voting powers of the participating shareholders. Ordinarily, the original shareholders will receive a certificate showing the extent of their participation and interest in the voting trust. Statutes commonly limit the number of years for which a voting trust may continue. Except for such a time limitation, Barbara’s suggestion is lawful. 4. Piercing the corporate veil. Judgment for suppliers. Nugent was operating an intricate corporate shell game in which he would cease doing business as one corporate entity when he was unable to pay creditors. It would be unfair and unjust to allow him to hide behind the corporate shield and avoid his legal obligations to the suppliers. The corporate veil should be pierced to prevent injustice to the suppliers. Accordingly, Nugent was liable for the debts owed by the various corporations. 5. Restrictions on transfer of shares. Judgment for the shareholders. A transfer restriction is not binding unless it is conspicuously noted on the share certificate or it is known by the transferee. In this case, the restriction was not noted on the certificates, but was stated in the articles. However, Vroom, as an officer of the corporation, was charged with knowledge of what was stated in the articles. Consequently, he knew of the existence of the restriction and was subject to it. 6. Limited liability of corporate shareholders; incorporation for the express purpose of obtaining limited liability. Judgment for Siebrecht, the defendant.
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Shareholders ordinarily have limited liability, even though the corporation was formed for the purpose of securing that limited liability.
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