Business Law 7 - Essay Example

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Michael and his wife were the firm’s director and officers while the firm operated. Erin Inc. had its own checking account and made sale deposits…
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Business Law 7
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Business Law Piercing the Corporate Veil: Essay Question 2 (Page 837) Layas v. Erin Homes Inc. Facts: Under certain circumstances, a court may pierce the corporate veil and hold shareholder liable for damages caused by a corporation.
Issue: Should the court “pierce the corporate veil” and hold Michael Ferns liable?
Explanation: Michael Ferns incorporated Erin Homes Inc for mobile homes but made no payment for his 100 shares stock certificate. Michael and his wife were the firm’s director and officers while the firm operated. Erin Inc. had its own checking account and made sale deposits this account. John and Thelma Layas purchased a mobile home from Erin at $17,500, which Erin did not deliver. The Layas sued Erin Homes and Michael individually.
Rule: The court should pierce the corporate veil and hold Ferns, who is a shareholder, liable for the company’s disregard for corporate formalities and inadequate capitalization. The ferns were liable because they were active in business operations.
Corporate Management: Question 4 (page 861)
Gimbel v. Signal Co.
Fact: Under the duty of loyalty, administrators in a company should not take advantage of an opportunity which rightfully belongs to the corporation that is the shareholders.
Issue: Did Signal Co. violate the business’s judgment rule?
Explanation: Signal, Co had an appraiser who valued its subsidiary at $230 million to $260 million. Another company, Burma Oil offered to buy the subsidiary at $480 million. Signal’s board of directors accepted the offer. Signal Co.’s shareholder sued Signal to prevent sale.
Rule: The board of directors violated the business judgment rule, by accepting the offer without getting the approval from other shareholders. An injunction is necessary until both parties determine the company’s value.
Shareholders: Part B, Compensation
Brehm v. Eisner (Page 875)
The Eisner case is only one of the many cases that show how companies are generous to some employees even when they have underperformed. In the course of 14 months that Michael Ovitz had worked, he did not increase foreign revenues and he also lacked experience when it came to managing a diversified public company.
Ovitz was excessively compensated by the compensation Board of directors, who had not consulted the shareholders of Disney. It was not only a waste of corporate finances, but the board violated the business judgment rule. This problem is widespread in companies where employees are favored by some team members in the management. The most viable solution for this issue would be to compensate a little amount of severance pay to an employee after consulting all shareholders in a company. Read More
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