Quiz 39: Corporate Formation and Financing


The court should respond that the amount of money S gleaned from abusing his position as part of IM made him liable for the profits he gleaned and the losses suffered by IM. The sale of his renovated property as well as the marina slip were more than enough to cover the amount the defendants are awarded.

The partners should consider forming a corporation. The key advantage here, based on the increased number of suits against swimming pools, is the limited personal liability of the partners. That means that if the partners happened to be sued, they would not be held liable (as long as there was no evidence of fraud.) Corporations enjoy rights to the court, due process, free speech, and freedom from unreasonable searches and seizures. Corporations last indefinitely, unlike partnerships. There are some cons to corporations, including double taxation. The corporation's profits are taxed and then once dividends are distributed to shareholders, their profits are also taxed. Since the partners want to expand and grow their business as well as be protected from liability, incorporating would be a good move.

Yes. As the court details, S used IM as a front for his own personal purchases, including real estate and recreational property. S commingled funds and exercised such control over the corporation to use it as his disposable and to his benefit, rather than to the goals of the corporation. Furthermore, S was abusing his position as head of the corporation and led GE to believe they were making a legitimate deal. Based on this reasoning, the court should pierce the corporate veil.

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