ADM 477 The Corporate Veil Essay
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages Description/Paper Instructions
ADM 477 The Corporate Veil Essay
ADM-477: Business Law
Getting Started
My Busy Body Quilt Shop, Inc.
After Barbara met her business partner Edgar at a quilting expo, she decided to incorporate her quilt shop business formally. She established the “My Busy Body Quilt Shop, Inc.,” with her as the majority shareholder. As part of their due diligence, Barbara and Edgar kept good financial records and paid the shop’s business taxes on time each year. However, Barbara didn’t feel the need to hold formal shareholder meetings, since the business was just the two of them. Barbara also didn’t see any need for a separate business checking account. If there were bills to be paid or materials to be purchased, she and Edgar would use their personal and business credit cards or their individual checking accounts.
The business was doing great for a while, but then Edgar fell ill, and now he has not been able to help Barbara run the shop for over a year. Despite her efforts to work out payment plans with creditors, Barbara cannot keep the accounts current. The company that she and Edgar purchased their long-arm quilting machine from has threatened to sue Barbara personally if she does not come up with the money the shop still owes. Barbara thought her business status as a corporation protected her from personal liability. Is she correct?
No, Barbara is subject to liability for the business debt. Corporations must not exist solely on paper, which is the case with Barbara’s business. Failing to observe formalities can result in shareholder liability. Barbara has not treated her business like a corporate entity. Corporations must hold formal shareholder meetings, keep accurate records of those meetings, and follow state law with respect to incorporation rules. Barbara has failed to hold shareholder meetings regularly. The law is clear with respect to keeping separate business financial accounts. Barbara has failed to completely segregate corporate assets and instead has been commingling funds. For these reasons, a court likely will hold her personally responsible for the quilt shop’s debt.
Upon successful completion of the course material, you will be able to:
Explain the advantages and disadvantages of operating a business as a corporation.
Resources
Textbook: The Legal Environment of Business
Background Information
Small business owners often avoid traditional incorporation because it is expensive, subject to double taxation, and very time consuming, in that it requires extensive record keeping. However, operating a corporation does have several advantages. Unlike a sole proprietorship, a corporation has a perpetual existence. A sole proprietorship ceases to exist when the owner dies. A corporation, however, survives and continues to operate long after its founders have all passed away.
Limited liability is another advantage of operating a corporation. Corporations are legal entities separate and distinct from their shareholders. This separation insulates shareholders from liability associated with corporate debt or misconduct. Shareholder liability is generally limited to the shareholder’s capital contributions.
It is important to note that shareholder limited liability status does not protect corporate shareholders in all situations. Shareholders are liable for their own conduct. If a shareholder engages in negligent or criminal conduct while acting on behalf of the business, both the business and the shareholder can be held liable. Courts also will pierce the corporate veil where shareholders dominate and control the corporation for the purpose of committing a crime or some other serious misconduct. For example, shareholders may attempt to defraud creditors through bogus asset transfers that are far below fair market value, or a corporation may seek to avoid existing legal obligations by creating a subsidiary, as sometimes occurs in labor disputes involving union contracts.
Undercapitalization of a corporation also may lead to shareholder liability. Corporations must be sufficiently capitalized to pay corporate debts. The corporation also must secure sufficient liability insurance in case of a lawsuit. If it does not, a court may hold shareholders liable for judgments levied against the corporation.
Of all the corporate entities, the close corporation runs the highest risk for having its corporate veil pierced. A close corporation is operated by a small group of individuals, usually family members. It is not subject to the stricter rules governing corporations. Thus, abuse of power due to shareholder domination is always a concern. Proper checks and balances may not be in place, so controlling shareholders can operate the corporation without oversight from a board of directors.
Instructions
Review the rubric to make sure you understand the criteria for earning your grade.
In your textbook, The Legal Environment of Business, read Chapter 12, “Business Organizations.”
Navigate to the threaded discussion and respond to the following prompts:
One of the key advantages to forming a corporation is that its owners are immune from personal liability for business debts and other obligations arising from operation of the corporation. This immunity from personal liability is commonly referred to as the “corporate veil.” Explain why you support the corporate veil, or why you do not support such immunity from personal liability for corporate debts and other obligations.
Your initial post is due by the end of the fourth day of the workshop.
Read and respond to at least two of your classmates’ postings, as well as all instructor follow-up questions directed to you, by the end of the workshop.
Your postings should also:
Be well developed by providing clear answers with evidence of critical thinking.
Add greater depth to the discussion by introducing new ideas.
Provide clarification to classmates’ questions and provide insight into the discussion.
Be posted on three different days during the workshop.
RUBRIC
QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points: Student failed to submit the final paper. 20 points out of 50: The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. 40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. 50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). Zero points: Student failed to include citations and/or references. Or the student failed to submit a final paper. 5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. 10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. 15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points: Student failed to submit the final paper. 5 points out of 20: The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors 10 points out 20: The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. Structure of the Paper (worth 10% of total points) Zero points: Student failed to submit the final paper. 3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. 5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements. The student also significantly writes too large or too short of and paper 7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper. GET THIS PROJECT NOW BY CLICKING ON THIS LINK TO PLACE THE ORDER
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