978-0077733711 Chapter 41 Solution Manual

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Chapter 41 – History and Nature of Corporations

V. ANSWERS TO PROBLEMS AND PROBLEM CASES

1. The advantage of free transferability of the shares does not exist in this context, because there

are not a large number of investors who are interested in buying into a closely held business

dominated by you and your four friends. Therefore, there is no market for resale of these

shares. Yet free transferability of the shares in this business is a problem, as sales of shares

2. No with regard to MWLP and yes with regard to MWINC. The court applied the rule of the

International Shoe case, finding that MWLP did not maintain sufficient minimum contacts

with Maryland, and therefore, the state’s the exercise of jurisdiction met the general test of

essential fairness. The court cited authority that when the cause of action does not arise out

of, or is not directly related to, the conduct of the defendant within the state, contacts

reflecting continuous and systematic general business conduct will be required to sustain

jurisdiction. Because the plaintiff introduced no evidence that MWLP had contacts with

3. No. 14th Street Photo does not have “certain minimum contacts” with Michigan justifying the

Michigan court’s litigating the merits of the sales transaction. While 14th Street Photo makes

Internet sales to residents in Michigan through its website, granting to Michigan special

jurisdiction over 14th Street Photo for those transactions, Michigan does not have general

jurisdiction for all of 14th Street Photo’s sales. More substantial contacts, such as having a

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Chapter 41 – History and Nature of Corporations

4. No. Note that although this case involved an LLC, the law applied is the same as if the

business were a corporation. The Court concluded that BN Online did not have a substantial

nexus with the parish to justify the imposition of a sales tax. The existence of a close

corporate relationship between various Barnes & Noble affiliates and a common corporate

name does not mean that the physical presence of one is imputed to the other. BN

Booksellers and BN Online were formally separate corporate entities that were wholly owned

5. The Supreme Court remanded the case. The Due Process Clause requires a definite link,

some minimum connection, between a state and the person, property, or transaction it seeks to

tax, as well as a rational relationship between the tax and the values connected with the taxing

state. The Commerce Clause forbids states to levy taxes that discriminate against interstate

6. Yes. The court found that Shrimp, Inc. was required to qualify to do business in Texas

because it was not engaged in a single transaction that could be completed within 30 days.

Therefore, by failing to quality, Shrimp, Inc. would have been unable to use Texas’s courts

7. Yes. The NCAA is clearly doing intrastate business in Texas. It is making many contracts in

Texas (for the rental of the Reliant Stadium and hotel rooms at least). Its employees are

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 41 – History and Nature of Corporations

8. No. Note that although this case involves an LLC, the law applied is the same as would apply

if the business were a corporation. The court of appeals affirmed the findings of the trial

court that Gasstop had not proved thin capitalization, alter ego, or failure to comply with the

formalities of LCC law. The failure of the LLC was not due to undercapitalization, but to a

9. No. The court held that it is permissible for a person to limit his liability by using the

corporate form. It was not enough for Walkovszky to allege that the assets of the corporation

10. REIS, Inc. should form 25 corporations, each of which owns one mall. The corporations will

be wholly owned by REIS. As a holding company, REIS will raise capital for all the

subsidiaries and allocate the capital to each subsidiary as necessary. REIS will be the

To prevent the piercing of the veils, REIS should adequate capitalize each subsidiary, make

sure each has its own board of directors and shareholder meetings, keep separate the assets of

11. Yes. The court pierced Elite Moving’s veil after finding that Branscum formed Elite Moving

to evade the obligation to Castleberry. “The variety of shams is infinite, but many fit this

12. No. The court found that there was no evidence that corporate formalities were not observed,

that there were non-functioning officers or directors, or that there were inadequate corporate

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Chapter 41 – History and Nature of Corporations

13. No. While Golino dominates J-Go, she is not engaging in any improper conduct, such as

treating the corporation as her alter ego or defrauding creditors by looting the corporation.

Although she elects her teenage daughter to the board of directors, the daughter receives only

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.