Piercing the Corporate Veil in Company Law

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What does the mid-term short exam primarily assess?

Final exam preparation

Theoretical concepts only

Basic notions and applied knowledge (correct)

Group dynamics

According to the class rules and suggestions, what is the recommended method to take notes?

Verbally during class discussions

By hand or using computers (correct)

Recording the lectures

Using only computers

What is one of the class rules regarding phone usage during the session?

Use phones for note-taking

Use phones for research

Allow phones on the table

Keep phones away (correct)

What happens if there is any class disruption according to the class rules?

Disciplinary procedure will be initiated Signup and view all the answers

What study approach does the final exam take according to the information provided?

Transversal approach to questions and activities Signup and view all the answers

According to class suggestions, when should students ask the professor questions?

Any question, when necessary Signup and view all the answers

When the corporate veil is 'pierced', what happens to the shareholders?

They are personally liable for the company's debts. Signup and view all the answers

In which situations can the corporate veil be pierced according to the text?

When the company acts fraudulently or abusively against the law. Signup and view all the answers

What does it mean when the text mentions a company being a 'mere façade' or a 'sham'?

The company is used to carry out improper purposes. Signup and view all the answers

In the given example of Corporations A, B, and C, why did Corporation B transfer all its assets to Corporation C?

To continue operating essentially the same business. Signup and view all the answers

What happens to limited liability when the corporate veil is pierced?

It is no longer available to shareholders. Signup and view all the answers

Why would a court disregard the corporate entity and hold shareholders personally liable?

In cases of fraud, wrongdoing, or injustice to third parties. Signup and view all the answers

What legal concept did the House of Lords firmly establish in the Salomon case?

Corporate veil Signup and view all the answers

What did the liquidator on behalf of unsecured creditors allege about the company in the Salomon case?

That it was a sham and essentially an agent of Salomon Signup and view all the answers

What rights did Salomon have through the floating charge in the liquidation process?

Recovery priority over unsecured creditors Signup and view all the answers

According to the House of Lords ruling, what is irrelevant when discussing a company's rights and liabilities?

Motives of those involved in promoting the company Signup and view all the answers

What did the liquidator allege regarding the relationship between Salomon and the company?

Company was essentially an agent of Salomon Signup and view all the answers

What did the House of Lords determine about the company's status despite allegations of being a sham?

It is an independent legal entity with its own rights and liabilities Signup and view all the answers

What type of contribution does Shareholder A make to the company?

Real estate Signup and view all the answers

Which type of contribution does not contribute to the constitution of share capital?

Services Signup and view all the answers

What type of contribution does Shareholder B make to the company?

Cash Signup and view all the answers

Which shareholder contributes services to the company?

None of the above Signup and view all the answers

What is the total share capital of the company with Shareholders Liam, Kate, and Lucy?

It's not provided in the text Signup and view all the answers

In the Ocala Breeders v. Hialeah case, which company was considered the parent company?

Hialeah Park Signup and view all the answers

What activities did the subsidiary company of Ocala Breeders handle?

Non-racetrack activities like weddings Signup and view all the answers

What was the monetary amount involved in the lawsuit against the subsidiary?

USD 1.5 million Signup and view all the answers

Which factor is NOT listed as a reason to lift the corporate veil according to the reading?

Involvement in legal disputes Signup and view all the answers

What must a creditor prove to show that the owner intentionally underfunded the entity?

Undercapitalization to deceive creditors Signup and view all the answers

How does courts analyze if the level of capital in a company is reasonable or enough?

By comparing it to the object and purpose of the business Signup and view all the answers

What happens to a shareholder's stake when a company issues new shares and the shareholder does not subscribe to any of them?

It decreases Signup and view all the answers

Which method can existing shareholders use to avoid dilution of their stake if the company issues new shares?

Exercising pre-emptive rights Signup and view all the answers

What is one way for shareholders to increase the share capital through a tangible contribution?

Contributing machinery or computers Signup and view all the answers

If the value of each share increases without changing the number of shares, what happens to the share capital?

Increases Signup and view all the answers

In what scenario would a shareholder's voting rights and dividends be diluted?

When the shareholder does not participate in new share issuance Signup and view all the answers

How does increasing the nominal value of existing shares impact the share capital?

Increases the share capital without affecting the number of shares Signup and view all the answers

What is required within 8 days of receiving funds paid as a contribution in cash?

Deposit at a notary or dedicated bank account Signup and view all the answers

Who has the authority to appoint a contribution auditor for assessing goods brought in as contributions in kind?

All shareholders unanimously Signup and view all the answers

What is the consequence of a capital increase without considering pre-emptive rights of shareholders?

The capital raise becomes invalid Signup and view all the answers

What happens if no valuation is conducted by a contribution auditor for assets contributed?

Shareholders have joint and several liability for 5 years Signup and view all the answers

What is included in the reserves used for capital increase under the 'Incorporation of reserves' section?

Retained earnings Signup and view all the answers

When can new shares be subscribed by third parties according to the text?

If pre-emptive rights of shareholders are disregarded Signup and view all the answers

What is the main aim of a capital raise for a company?

To gain credibility with customers and suppliers Signup and view all the answers

How can companies raise capital by issuing new shares?

By increasing the number of shares Signup and view all the answers

What may happen to existing shareholders when a company issues new shares to new members?

Their approval may be required for new shareholders Signup and view all the answers

In a capital raise, what could possibly prevent a company from facing dissolution?

Having equity remain above half of the share capital Signup and view all the answers

How does an increase in share capital impact a company's financial structure?

It enhances the company's capability to avoid dissolution Signup and view all the answers

What is one way a company may raise capital according to the text?

Issuing debt securities Signup and view all the answers

What percentage of votes cast in favor of the resolution is generally required for a special resolution to decide on capital raising?

75% Signup and view all the answers

In what cases does a capital increase require a unanimous decision according to the text?

Increasing the number of newly issued shares Signup and view all the answers

What is the minimum deadline for subscribing to shares before a capital increase in cash?

5 days Signup and view all the answers

What is one requirement when initiating a capital increase in cash?

The initial share capital must be fully paid up Signup and view all the answers

What does a special resolution for capital raising generally state according to the text?

The overall amount of the capital increase Signup and view all the answers

What formal step needs to be taken regarding the articles of association during a capital increase?

Amendment of the articles of association Signup and view all the answers

What are the 3 standards applied to directors/officers to determine compliance with the Business Judgment Rule?

Exercise of due care, act in good faith, reasonable belief in corporate interest Signup and view all the answers

In Smith v. Van Gorkom, why was the director found to be grossly negligent?

He took quick actions without any informed business judgment Signup and view all the answers

What are the limitations on the powers of directors mentioned in the text?

Amending articles without shareholder approval, lawful actions only, following bylaw provisions Signup and view all the answers

What type of actions may directors not take without first obtaining shareholder approval?

Amending the articles of incorporation Signup and view all the answers

What is required for a director's inaction to be protected by the Business Judgment Rule?

Conscious decision to refrain from acting Signup and view all the answers

In what scenario can a director's actions breach the duty of care?

When informed business judgment is lacking Signup and view all the answers