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.

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 months ago

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