ExpertHard1 markMultiple Choice
CPA · Question 17 · Area II: Business Law
A shareholder of a C corporation may be held personally liable for the corporation's debts under the doctrine of 'piercing the corporate veil' in which of the following situations?
A shareholder of a C corporation may be held personally liable for the corporation's debts under the doctrine of 'piercing the corporate veil' in which of the following situations?
Answer options:
A.
The corporation has elected S corporation status.
B.
The shareholder is also a director and officer of the corporation.
C.
The corporation becomes insolvent due to poor economic conditions.
D.
The shareholder commingles personal funds with corporate funds.
How to approach this question
Look for failure to maintain corporate formalities or commingling of assets.
Full Answer
D.The shareholder commingles personal funds with corporate funds.✓ Correct
Courts may pierce the corporate veil and hold shareholders liable if the corporation is the 'alter ego' of the shareholder. Commingling personal and corporate funds is a classic example of failing to maintain separate corporate identity.
Common mistakes
Thinking that being an officer or the company going bankrupt is enough to pierce the veil.
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