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ALTERNATE CASE PROBLEM ANSWERS
CHAPTER 39
CORPORATE FORMATION AND FINANCING
39-1A. Professional corporations
Yes. The court held that the shareholders, as members of a professional corporation, could not
be held individually liable for past due rent and granted their motion to dismiss the action against
39-2A. Corporate status
The court held that because the parties intended to create a lease agreement with the cor-
poration as lessee, the corporate promoters who signed the lease were not liable. The court
stressed that whether personal liability will be placed on a corporate promoter depends upon the
intent of the parties. Howard Realty was aware that a corporation was to be formed, and the
lease form named D&M, Inc., as the lessee. Additionally, Howard did not seek any personal
39-3A. Liability of shareholders
The court refused to disregard the corporate form and pierce the corporate veil. The court listed
the factors to be considered when determining whether to disregard the corporate form: “(1)
B-2 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 39
39-4A. Liability for preincorporation contracts
The appellate court agreed with the trial court—Alexander and Looney had not acted on behalf
of the corporation, and thus, they were not liable to Harris. In passing the state’s business
corporation act, the appellate court pointed out, “the Arkansas General Assembly adopted a
39-5A. Disregarding the corporate entity
The court found Ameri-Pak International responsible for the damage and held Zuberi personally
liable. The court reasoned that Zuberi knowingly signed the lease with the Gimberts as the
39-6A. Liability of shareholders
The court ruled in PTR’s favor, and on appeal, the Missouri Court of Appeals affirmed. The
appellate court pointed out that “[t]o pierce the corporate veil, a plaintiff must show: (1) Control,
not mere majority or complete stock control, but complete domination, not only of finances, but
of policy and business practice in respect to the transaction attacked so that the corporate entity
as to this transaction had at the time no separate mind, will or existence of its own; and (2) Such
APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 39 B-3
39-7A. Corporate powers
What the president of Soda Dispensing signed was a confession of judgment—that is, he
agreed to the entry of a judgment in a court against Soda Dispensing without the institution of
legal proceedings. When Cooper, Selvin entered the judgment, the vice-president filed a motion
to vacate it, which the court granted. On Cooper, Selvin’s appeal, this order was affirmed. The
39-8A. Corporate status
The court ruled in favor of the supplier, and Hill appealed. The Maryland Court of Special
39-9A. S Corporations
The state tax commissioner refused the request of Agley and the others for refunds, and they
appealed to the Ohio Board of Tax Appeals, which in each case affirmed the order denying a
refund. They appealed to the Ohio Supreme Court, which affirmed the decision of the state
board. The state supreme court explained that the taxpayers’ position “ignores the ‘flow
through’ nature of an S corporation, whereby business income generated by the S corporation
flows directly through to the shareholder for taxation purposes.” As to the claim that they did not
B-4 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 39
39-10A. A QUESTION OF ETHICS
1. The court in this case defined “situations in which one corporation shows such
domination and control over another that the latter corporation becomes an adjunct or alter ego
of the first. In such a situation, when the formal corporate separateness and the arrangements
between the two corporations is devised or used to accomplish a fraud, injustice, or some
unlawful purpose, then the separate formal corporate structures will be ignored. To ‘pierce the
corporate veil’ and hold one corporation liable for the acts of another corporation, a plaintiff must
2. ADG made this argument. The court held that “[t]his principle has questionable validity”
in a context involving the factors noted above “and has no viability in the context of this case. In
the first place, this case . . . represents [an] egregious situation. . . . [T]he lessee was not
even the actual occupant of the premises or conducting . . . business thereon but was merely a
