Question

Assume the football team is set up as a C corporation and that Lenny, Sarah, and Sam are the shareholders. After setting up the corporation, no formalities of the corporation were kept. Lenny, Sarah and Sam all pay most of their personal bills out of corporate bank accounts. The team is sued for negligence because an individual who turned to see the quarterback running naked crashed her car, but the team does not have sufficient funds or insurance to cover the judgment. Which of the following is true?

A. Lenny, Sarah and Sam may be personally liable because of the corporation by estoppels doctrine.
B. Lenny, Sarah and Sam may be personally liable because of the ultra vires doctrine.
C. Lenny, Sarah and Sam can never be personally liable because the team is set up as a corporation.
D. Lenny, Sarah and Sam may be personally liable because the plaintiff may be able to pierce the corporate veil.

Answer 1

Answer: Option (D) is correct.

At time investors of "C" organization outset paying personal bills from a corporate account, it will imply that he is no longer considering it as an autonomous transaction. Therefore, he is individually responsible for any damage owned by an organization. In this case, the organization veil that secured the owner from personal accountability may be removed.