Question

16.5 Ethics Case M.R. Watters was the majority shareholder of several closely held corporations, including Wildhorn Ranch, Inc. (Wildhorn). All these businesses were run out of Watters’s home in Rocky Ford, Colorado. Wildhorn operated a resort called the Wildhorn Ranch Resort in Teller County, Colorado. Although Watters claimed that the ranch was owned by the corporation, the deed for the property listed Watters as the owner. Watters paid little attention to corporate formalities, holding corporate meetings at his house, never taking minutes of those meetings, and paying the debts of one corporation with the assets of another. During a vacation visit, two guests of Wildhorn Ranch Resort drowned while operating a paddleboat at the ranch. The family of the deceased guests sued Watters to recover from Watters. Is Watters personally liable in this case? Geringer v. Wildhorn Ranch, Inc., 706 F.Supp. 1442, 1988 U.S. Dist. Lexis 15701 (United States District Court for the District of Colorado)

Answer 1

Watters is personally liable because his unethical conduct led to the lifting of the corporate veil. This means the corporate is no longer deemed as a separate entity and MR. Watters is personally liable since he is the majority shareholder.

Explanation:

Failure to pay the necessary attention to corporate formalities, undercapitalizing the corporations, failure to properly document transactions, and using the business undertaking to achieve fraud are some of the factors that would lead to the lifting of the corporate veil. An organization is viewed as a separate entity (legal person) but this is not always the case if the shareholders violate some factors for their own benefit. In case this happens, the corporate veil is lifted and the rights and liabilities of the corporation are treated as the rights and liabilities of the shareholders. Watters is the majority shareholder and the land on which the accident occurred is deeded to him personally even after registering the Wildhorn Ranch, Inc. and other corporations. This means he wants to enjoy the financial benefits from the corporations while being unaccountable for any damage or liability. Since there is no lease or indemnity agreement between Watters and the corporation, the liability of the accident falls on him. Therefore, MR. Watters will be personally liable.