Question

Brian is the 99% shareholder, president, and director of Arapine Corp. He frequently uses the corporation credit card for his personal expenses. If Arapine is insolvent and unable to pay its debts, and the corporation’s creditors sue Brian personally, what is the likely result?

Answer 1

Answer: (C) Brian is liable because the court will pierce the corporate veil.

Explanation:

The phrase "PIERCING THE CORPORATE VEIL" is used to describe a situation where a Court decides to hold Corporate Shareholders and/or LLC Owners personally liable for the liabilities of a corporation.

When individuals act in a way that does not separate them from the company (dissolving this 'veil'), the Court looks upon this seriously and treats it in kind. Some instances of this happening are, failure to keep business and personal funds separate and diverting business assets for personal use without proper documentation as Brian seems to have done.

For this reason, the Court will very much likely Pierce the veil.

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