Shareholders Personally Liable for Obligations of Corporation

The video tutorial discusses the concept of personal liability in relation to corporate obligations, emphasizing that shareholders are generally protected from personal liability for corporate debts. However, in certain cases, such as when the corporate veil is pierced, shareholders can be held personally liable. The tutorial explains the conditions under which the corporate veil can be pierced, including the misuse of the corporation as a shell, lack of business formalities, and improper capitalization. It highlights the importance of maintaining a clear separation between corporate and personal assets to avoid personal liability.

What is generally true about shareholders' personal liability for corporate debts?

• Shareholders are always personally liable for corporate debts.

• Shareholders are never personally liable for corporate debts.

• Shareholders are liable only if they are also directors.

• Shareholders are generally not personally liable for corporate debts.

What does 'piercing the corporate veil' mean?

• Allowing shareholders to avoid taxes.

• Holding shareholders personally liable for corporate obligations.

• Merging two corporations into one.

• Dissolving a corporation.

Which factor is NOT considered when determining if a corporation is an alter ego of its shareholders?

• Use of corporate assets for personal purposes.

• Shareholders' personal credit score.

• Intertwined roles of shareholders and corporate officers.

• Lack of business formalities.

What is a strong indicator that a corporation is merely a shell for its shareholders?

• The corporation has a large number of employees.

• The corporation is publicly traded.

• The corporation has a diverse board of directors.

• The corporation regularly uses personal checks to pay corporate debts.

What does undercapitalization of a corporation indicate?

• The corporation has excess funds.

• The corporation is expanding rapidly.

• The corporation is being used to mitigate risk without being a true entity.

• The corporation is financially healthy.

How can the misuse of corporate assets lead to piercing the corporate veil?

• By showing that the corporation is a separate legal entity.

• By demonstrating that corporate assets are used for personal gain.

• By proving that the corporation is profitable.

• By indicating that the corporation has a strong market presence.

What role does insurance play in the context of corporate liability?

• It is irrelevant to corporate liability.

• It is only important for large corporations.

• It can be a factor in determining undercapitalization.

• It guarantees that shareholders are never liable.