worksheet 39.3: Piercing the Corporate Veil &

Pierce veil tricked insolvent thinly evade formalities commingled

A court will disregard the corporate form and pierce the corporate veil in five circumstances: first, if a party is tricked into dealing with the corporation rather than the individual; second, if the corporation is set up to always be insolvent or is thinly capitalized; third, if the corporation is formed to evade an existing legal obligation; fourth, if the corporation fails to follow the statutory corporate formalities ; and fifth, if the personal and corporate interests are commingled so that the corporation has no separate identity.

False

As of 2016, companies are not allowed to use crowdfunding to offer and sell securities.

True

Bonds normally have a fixed payment and a maturity date when the principal is returned to the bondholder

Venture Capital

Capital provided to new businesses by professional, outside investors

Crowdfunding

Cooperative activity in which people network and pool funds and other resources via the Internet to assist a cause or invest in a venture

Securities Bond Stock

Corporations normally are financed by . One type of security consists of borrowing funds and is called a . The other main type of security consists of ownership in the corporation and is called a , or equity security.

private equity capital

Funds from wealthy investors to use and invest in existing corportaions

cumulative participating convertible redeemable repurchase

Preferred stock comes in many varieties. Cumulative preferred stock includes a requirement that past dividends not paid must be paid in future years before any common stock dividends may be paid. Participating preferred stock includes the ability to collect dividends with the common stock owners after all preferred dividends have been paid. Convertible preferred stock may be turned in for common stock under certain conditions. Redeemable preferred stock, also known as callable preferred stock, comes with the risk that the issuing company may repurchase the shares under certain conditions.

owners have priority on dividends.

Preferred stock is often considered a more conservative, or less aggressive, investment than common stock because:

True

Private equity firms use their private equity capital to invest in existing corporations

Notes payable Accounts payable

Select two other types of debt that a corporation may have in addition to debt securities.

an ownership interest in the corporation.

Stock may be described as:

Preferred stock

Stock that gives the holder priority as to payment of dividends and distribution of assets on dissolution

Common stock

Stock that provides an interest in the corporation with regard to control, earnings and net assets

close corporation.

The type of corporation most at risk for piercing the corporate veil is the:

True

To pierce the corporate veil is to expose the shareholders to personal liability

alter-ego theory

When a corporation is not operated as a separate entity, this is called the