A is corrent. The requirement is to identify the circumstances that would permit piercing of the corporate veil. Piercing the corporate veil may occur when the corporation is used to perpetrate fraud (e.g., forming an undercapitalized corporation), the owners and officers do not treat the corporation as a separate entity, shareholders commingle assets, or corporate formalities are not followed. The concept of piercing the corporate veil is designed to protect creditors. Therefore, this answer is correct because only statement I, "the corporation is thinly capitalized," is true.
B is incorrect. The requirement is to identify the circumstances that would permit piercing of the corporate veil. Piercing the corporate veil may occur when the corporation is used to perpetrate fraud (e.g., forming an undercapitalized corporation), the owners and officers do not treat the corporation as a separate entity, shareholders commingle assets, or corporate formalities are not followed. The concept of piercing the corporate veil is designed to protect creditors.
C is incorrect. The decision to grant a security interest is a matter of negotiation between the shareholder and the corporation; it is a private contract matter between the two parties. Whether a security interest is granted, or not, provides no basis for piercing the corporate veil.
D is incorrect. The decision to grant a security interest is a matter of negotiation between the shareholder and the corporation; it is a private contract matter between the two parties. Whether a security interest is granted, or not, provides no basis for piercing the corporate veil.
|
