ExpertHard1 markMultiple Choice
CPA · Question 67 · Area II: Business Law
Which of the following acts is most likely to cause a piercing of the corporate veil, holding shareholders personally liable?
Which of the following acts is most likely to cause a piercing of the corporate veil, holding shareholders personally liable?
Answer options:
A.
Failing to make a profit for three consecutive years.
B.
Commingling personal and corporate funds.
C.
Forming the corporation to limit liability.
D.
Having only one shareholder.
How to approach this question
Identify the abuse of the corporate form. Commingling funds = treating the corp as a piggy bank.
Full Answer
B.Commingling personal and corporate funds.✓ Correct
Courts will 'pierce the corporate veil' and hold shareholders liable if the corporation is used as an 'alter ego' of the shareholders. Commingling personal and corporate funds is a primary factor indicating such abuse. Mere losses or single ownership are not grounds for piercing.
Common mistakes
Thinking single-owner corporations are automatically suspect.
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