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Piercing the Corporate Veil • Disregard the corporate fiction • Creditors ask the court to disregard the separateness between shareholder and corporation (so that shareholders may be held liable) When veil might be pierced:  Started w/ too few assets to pay debts (under capitalization not bad per se, but could be fraud if objective is to operate risky business while avoiding claims of creditors)  Alter ego (when shareholders mix personal & corporate transactions)  Failure to adhere t corporate formalities (holding directors & shareholders meetings, keeping books, etc) (piercing) can also apply . . . To corporations who operate business through a subsidiary Subsidiary: majority of stock owned by a parent company Business Judgment Rule

Courts will not second guess business judgment of officers & directors when they act in good faith…

Must: • • • Make informed decision Have no conflict of interest Have a rational basis Self-Dealing Deprives officers and directors of the protection of the business judgment rule Fiduciary Duty

One of the highest duties imposed by law

Arises in a fiduciary relationship

Fiduciary relationship is a relationship of trust and confidence

Can be formal: atty/client, partners in partnership, officers & directors/corporation OR can arise informally in SPECIAL relationships of trust and confidence Fiduciary Duties officers and directors owe the corporation:

• •

Of loyalty (no self-dealing) Of care

No fiduciary duty In arms-length business transactions i.e borrower/lender, insured/insurer etc MUST BE

SPECIAL

REALATIONSHIP

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