Legal Challenges 1

What is the definition of natural person

A natural person is a human with legal personality

What is an example of a natural person

A consumer acting outside professional activities is a natural person

What is the definition of legal person

A legal person is an organization with its own legal identity

What can a legal person do

A legal person can own assets sign contracts sue and be sued

What is a key characteristic of legal personality

It acts independently from the individuals who manage it

What factors influence choice of business structure

Liability control taxation flexibility and capital needs

What does liability refer to in business structure choice

Liability refers to financial exposure of owners

What does control refer to in business structure choice

Control refers to who makes decisions and how

What does taxation refer to in business structure choice

Taxation refers to how the business is taxed

What is managerial flexibility

Managerial flexibility is ease of operating and adapting the business

What do capital needs refer to

Capital needs refer to required financial resources

What is limited liability

Limited liability means shareholders risk only the value of their shares

What happens to personal assets under limited liability

Personal assets are protected

What are sources of business liability

Loans expenses or lawsuits

What is unlimited liability

Unlimited liability means owners may pay business debts with personal assets

Why might someone choose unlimited liability

Because it is cheaper simpler and more flexible to manage

What is the corporate veil

The corporate veil separates company assets from shareholder assets

What does the corporate veil protect

It protects shareholders from personal liability

What can a company do thanks to legal personality

It can contract own property sue be sued and incur debts

What were the facts in the Salomon case

Mr Salomon transferred his business to a company he created

What did early courts decide in Salomon

They said the company was his agent so he must pay debts

What did the House of Lords decide in Salomon

They ruled the company was a separate legal person

Why was Mr Salomon not personally liable

Because the company was lawfully incorporated

Why is Salomon important

It confirmed legal personality and strengthened the corporate veil

Do motives behind incorporation matter after Salomon

Motives do not matter if incorporation is legal

What is piercing the corporate veil

It means courts ignore company personality and hold owners liable

How often do courts pierce the veil

Courts pierce the veil only exceptionally

When do courts pierce the veil for fraud

When companies are used for wrongdoing or illegal purposes

What is an example of fraud for veil piercing

Moving assets to avoid paying creditors

What happened in the Marc example

Marc moved assets to a new company to avoid debts

Why was veil piercing justified in the Marc example

Because it was an abuse of legal personality

What liability applied to Marc

He was jointly and severally liable

What is the alter ego doctrine

It applies when two entities are not sufficiently separate

What is a sign of alter ego same directors

Same directors is a sign of alter ego

What is a sign of alter ego shared offices

Sharing offices is a sign of alter ego

What is a sign of alter ego financing

Parent financing of subsidiary is a sign of alter ego

What is a sign of alter ego overlapping employees

Overlapping employees is a sign

What is a sign of alter ego consolidated accounts

Consolidated accounts or taxes is a sign

What were the facts in Bestfoods

A parent company controlled operations of a polluting subsidiary

What did the court examine in Bestfoods

Level of control operational overlap and separateness

What was the outcome in Bestfoods

The parent company was held liable

What is undercapitalization

Undercapitalization is insufficient initial capital

Is undercapitalization alone enough to pierce the veil

It is not enough alone

When can undercapitalization justify veil piercing

When combined with harm to creditors

When is capitalization evaluated

It is evaluated at incorporation

What happens when the veil is pierced

Shareholders become liable for company debts

What assets can be used after veil piercing

Shareholder personal assets

What happens to the corporation when veil is pierced

It is disregarded legally

What is share capital

Share capital is total value of cash and asset contributions

What are cash contributions

Cash contributions are monetary amounts paid by shareholders

What are contributions in kind

Contributions in kind are assets like property or equipment

Do contributions in kind count toward share capital

Contributions in kind count

What are services contributions

Services contributions are labor or skills

Do services contributions count toward share capital

They do not count

What rights do services contributions give

They give rights to dividends

What does share capital determine

It determines voting rights and ownership

How does share capital give stability

It absorbs losses and supports solvency

What is minimum capital in France for SAS (President)

There is no minimum

What is minimum capital in France for SARL (Gérant)

There is no minimum

What is minimum capital in France for SA

Minimum is thirty seven thousand euros

When is an auditor required for contributions in kind in France

When contributions exceed thirty thousand euros or half the capital

What is minimum capital in UK private limited companies

No minimum

What is minimum capital in UK PLC

Minimum is fifty thousand pounds with a quarter paid

What is minimum capital in the US for corporations

There is no minimum

How much must be paid in cash at incorporation in SARL

20% must be paid

How much must be paid in cash at incorporation in SAS or SA

50% must be paid

When must remaining cash be paid

Within 5 years

What conditions must contributions in kind meet

They must be transferable legal and fairly valued

Give examples of contributions in kind

Real estate equipment or intellectual property

Do service contributions form share capital

They do not form share capital

What was total share capital in the exercise

Total share capital was 250.000 euros

How many shares did Liam receive

Liam received 200 shares

How many shares did Lucy receive

Lucy received 50 shares

How many shares did Kate receive

Kate received 50 shares not counted toward share capital

What is key idea one from the chapter

The corporate veil protects but may be pierced for abuse

What is key idea two from the chapter

Liability determines personal financial risk

What is key idea three from the chapter

Share capital influences ownership rights and stability