Java Joint, Inc. is a Delaware corporation owned by four brothers. The corporation owns a coffee...

Java Joint, Inc. is a Delaware corporation owned by four brothers. The corporation owns a coffee shop in West Haven, Connecticut called Java Joint. To save money, the brothers handled the incorporation of Java Joint, Inc. by themselves without using a lawyer. They filed the Certificate of Incorporation with the Delaware Secretary of State and paid the necessary filing fees to form Java Joint, Inc. However, they have not adopted any organizational documents for the corporation, they have not elected directors of the corporation and they haven’t appointed any officers. To save money on bank fees, they use one of the brother’s personal bank account for the business. Lois Lender made a $10,000 loan to the corporation which is now in default. (The shareholders did not personally guarantee this loan.) The total balance due on the loan including unpaid interest is $13,500. In addition to suing the corporation, Lois is also suing each of the four brothers individually. Under these circumstances, which of the following is true?

		Lois has a strong legal claim against all four brothers because shareholders of a corporation are always personally liable for the obligations of the corporation.
		A corporation cannot be legally established without using an attorney, so all four brothers are personally liable for the $13,500 due to Lois.
		Lois has a strong legal claim against all four brothers as shareholders of Java Joint, Inc. under the doctrine of ‘piercing the veil.’
		All four brothers are liable to Lois under the doctrine of res ipsa loquitor.

Solutions

Expert Solution

Answer. (c) Lois has a strong legal claim against all four brothers as shareholders of Java Joint, Inc. under the doctrine of ‘piercing the veil.’

a. is a false statement because the Corporation is a legal entity that limits the liability of shareholders in the corporation. So the shareholder is not personally liable in the corporate debt. Another way to make shareholders liable for the corporate debt is if the shareholder signed a personal guarantee on the debt. In the situation of Java Joint Inc., no shareholder has signed a personal guarantee for the debt from Lois. Creditors can collect their debt from the assets of the corporation only.

b. is a false statement because a corporation can be filed without using a legal attorney. A shareholder can incorporate a corporation by following guidelines, filling the required documents and file them with the state. In the case of Java, Joint Inc. shareholders handled the incorporation by themselves without using a legal attorney. They filed the Certificate of Incorporation with the Delaware Secretary of State and paid the necessary filing fees to form Java Joint, Inc.

c. The statement is True. In the doctrine of "piercing the veil," the court removes the limited liability clause between shareholders and corporations and hold shareholders personally liable for the corporation's debt.

d. The statement is False. The doctrine of res ipsa loquitor is a common law of negligence. In this theory the court assumes that negligence has occured when there are such facts and circumstances. This mainly applied in accidents that occured due to negligence from other party.

keosha answered 4 weeks ago

Next > < Previous

Related Solutions

Question 1 Splish Brothers Inc. owns 25% of the common shares of Culver Corporation The other...

Question 1 Splish Brothers Inc. owns 25% of the common shares of Culver Corporation The other 75% of the shares are owned by the Culver family. Splish Brothers acquired the shares eight years ago through a financing transaction. Each year, Splish Brothers has received a dividend from Culver. Culver has been in business for 60 years and continues to have strong operations and cash flows. Splish Brothers must determine the fair value of this investment at its year end. Since...

CNY Coffee Inc. uses three types of coffee beans (Columbia, Java, and Brazil) as mixtures to...

CNY Coffee Inc. uses three types of coffee beans (Columbia, Java, and Brazil) as mixtures to manufacture its two coffee products (Energy, and Everyday). The cost per pound, the availability, and rating information of the coffee beans are as follows. Coffe Bean Cost Per Pound Caffeine Rating Taste Ratting Aroma Rating Available Pounds Columbia $2.25 68 90 88 695 Java $1.70 78 63 77 880 Brazil $1.95 85 80 95 955 Coffee product tests are used to provide ratings on...

Joan Frazier was just hired as an employee by SJR Restaurants, Inc., a Delaware Corporation domiciled...

Joan Frazier was just hired as an employee by SJR Restaurants, Inc., a Delaware Corporation domiciled in Colorado. Ms. Frazier maintains a residence in Orange County, California, so her children may attend the schools of her choice and so that her husband may be employed there as a leading plastic surgeon. SJR has just opened three (3) restaurants in Utah, Nevada, and Idaho. SJR requires Ms. Frazier set up the general ledger accounting system at each restaurant. SJR estimates it...

Cartman Corporation owns 90 shares of SP Corporation. The remaining 10 shares are owned by Kenny...

Cartman Corporation owns 90 shares of SP Corporation. The remaining 10 shares are owned by Kenny (an individual). After several years of operations, Cartman decided to liquidate SP Corporation by distributing the assets to Cartman and Kenny. The tax basis of Cartman's shares is $13,000 and $8,000 for Kenny's shares. SP reported the following balance sheet at the date of liquidation: Cash $18,000 $18,000 Accounts receivable 16,000 16,000 Stock investment 15,000 75,000 Land 36,000 21,000 Total assets $85,000 $130,000 Common...

The stock in Black Corporation is owned by Sam and Susan, who are unrelated. Sam owns...

The stock in Black Corporation is owned by Sam and Susan, who are unrelated. Sam owns 70% and Susan owns 30% of the stock in Black Corporation. The following assets are to be distributed in complete liquidation of Black Corporation: Adjusted Fair Market Basis Value Cash $100,000 $100,000 Inventory 120,000 140,000 Equipment 220,000 180,000 Land 150,000 180,000 a. What gain or loss would Black Corporation recognize if it distributes the cash, inventory, and equipment to Sam and the land to...

Java Source, Inc. (JSI), is a processor and distributor of a variety of blends of coffee....

Java Source, Inc. (JSI), is a processor and distributor of a variety of blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. JSI offers a large variety of different coffees that it sells to gourmet shops in one-pound bags. The major cost of the coffee is raw materials. However, the company’s predominantly automated roasting, blending, and packing processes require a substantial amount of manufacturing overhead. The company uses relatively...

22. Corporation Z is owned entirely by two individuals, C and D. C owns 60 shares...

22. Corporation Z is owned entirely by two individuals, C and D. C owns 60 shares of Z common stock bought in one transaction for $1,200. D owns 40 shares of Z common stock with a basis of $60 per share. The stock's fair market value is $40 per share. Z's E&P is $1,000. C sells 60 shares to Z for $1,800. D sells 10 shares back to Z for $400. a. The redemption will be treated as a dividend....

Acquisitive Reorganizations I. A. T Corporation is owned by four individuals A, B, C and D...

Acquisitive Reorganizations I. A. T Corporation is owned by four individuals A, B, C and D and their respective adjusted basis in their T stock are $19,000, $87,000, $114,000 and $25,000. T’s assets consist of the following: Cash $20,000; Inventory $200,000 (AB $140,000); Land $180,000 (AB $210,000). Pursuant to the laws of the State of New York, T is merged into P Corporation pursuant to a plan whereby each shareholder of T is to receive $75,000 of P stock and...

ABC, Inc., a domestic corporation, owns 100% of HighTax, a foreign corporation. HighTax has $50,000,000 of...

ABC, Inc., a domestic corporation, owns 100% of HighTax, a foreign corporation. HighTax has $50,000,000 of undistributed E & P, all of which is attributable to general limitation income, and $30,000,000 of foreign income taxes paid. HighTax distributes a $5,000,000 dividend to ABC. The dividend, which is subject to a 5% foreign withholding tax, is ABC's only item of income during the year. The U.S. tax rate is 35%. a. ABC's deemed-paid taxes on the dividends are $_____, and the...

Marigold Corporation leased equipment to Splish Brothers, Inc. on January 1, 2020. The lease agreement called...

Marigold Corporation leased equipment to Splish Brothers, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,691 at the beginning of each year of the 2-year lease. The equipment has an economic useful life of 6 years, a fair value of $7,800, a book value of $5,800, and Marigold expects a residual value of $5,300 at the end of the lease term. Marigold set the lease payments with the intent of earning a 8% return,...

Subjects