ALTERNATE CASE PROBLEM ANSWERS
CHAPTER 39
CORPORATE FORMATION AND FINANCING
39-1A. Professional corporations
Yes. The court held that the shareholders, as members of a professional corporation, could not
39-2A. Corporate status
The court held that because the parties intended to create a lease agreement with the cor-
poration as lessee, the corporate promoters who signed the lease were not liable. The court
stressed that whether personal liability will be placed on a corporate promoter depends upon the
intent of the parties. Howard Realty was aware that a corporation was to be formed, and the
B-2 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 39
39-4A. Liability for preincorporation contracts
The appellate court agreed with the trial court—Alexander and Looney had not acted on behalf
of the corporation, and thus, they were not liable to Harris. In passing the state’s business
corporation act, the appellate court pointed out, “the Arkansas General Assembly adopted a
39-5A. Disregarding the corporate entity
The court found Ameri-Pak International responsible for the damage and held Zuberi personally
liable. The court reasoned that Zuberi knowingly signed the lease with the Gimberts as the
39-6A. Liability of shareholders
The court ruled in PTR’s favor, and on appeal, the Missouri Court of Appeals affirmed. The
appellate court pointed out that “[t]o pierce the corporate veil, a plaintiff must show: (1) Control,
not mere majority or complete stock control, but complete domination, not only of finances, but
of policy and business practice in respect to the transaction attacked so that the corporate entity
as to this transaction had at the time no separate mind, will or existence of its own; and (2) Such
APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 39 B-3
39-7A. Corporate powers
What the president of Soda Dispensing signed was a confession of judgment—that is, he
agreed to the entry of a judgment in a court against Soda Dispensing without the institution of
legal proceedings. When Cooper, Selvin entered the judgment, the vice-president filed a motion
39-8A. Corporate status
39-9A. S Corporations
The state tax commissioner refused the request of Agley and the others for refunds, and they
appealed to the Ohio Board of Tax Appeals, which in each case affirmed the order denying a
refund. They appealed to the Ohio Supreme Court, which affirmed the decision of the state
board. The state supreme court explained that the taxpayers’ position “ignores the ‘flow
through’ nature of an S corporation, whereby business income generated by the S corporation
flows directly through to the shareholder for taxation purposes.” As to the claim that they did not
1. The court in this case defined “situations in which one corporation shows such
show: 1) Control, . . . not only of finances, but of policy and business practice . . . ; and 2)
Such control must have been used by the corporation to commit fraud or wrong, to perpetrate
the violation of statutory or other positive legal duty, or dishonest and unjust act in contravention
of plaintiff’s legal rights; and 3) The control and breach of duty must proximately cause the injury
or unjust loss complained of.” To determine the degree of control, factors include the degree to
which one corporation owns the stock of another, the two firms’ capitalization, and the
commonality and interrelation of their directors, officers, employees, property, and business. In
2. ADG made this argument. The court held that “[t]his principle has questionable validity”
in a context involving the factors noted above “and has no viability in the context of this case. In