Posted: April 7th, 2015

Business Law

Business Law

1.    Sarbanes-Oxley was reform legislation designed to reform corporate abuses of the 1990s and early 2000s. The Legislation places new obligations on corporate governance and on working of the Audit Committee of Boards of Directors. It certainly has curbed the worse abuses of corporate governance, but there are critics who charge that Sarbanes-Oxley has imposed too many burdens and way too many costs.

What are the benefits and costs of Sarbanes-Oxley? Should Sarbanes-Oxley be reformed? What provisions would you include in a revised Sarbanes-Oxley?

2.    A big advantage of corporate existence is the limited liability protecting individuals from liability for corporate obligations, but Courts will look at the legitimacy of corporate existence and ask if the limited liability protection should be sustained or whether the corporate veil should be pierced. What factors will lead a Court to pierce the corporate veil?

3.    In end of Chapter Case 37.12, should the corporate veil be pierced? Why or why not?
37.12
Jon-T Chemicals, Inc. (Chemicals), was an Oklahoma corporation engaged in the fertilizer and chemicals business. John H. Thomas was its majority shareholder and its president and board chairman. Chemicals incorporated Jon-T Farms, Inc. (Farms), as a wholly owned subsidiary, to engage in the farming and land-leasing business. Chemicals invested $10,000 to establish Farms. All the directors and officers of Farms were directors and officers of Chemicals, and Thomas was its president and board chairman. In addition, Farms used officers, computers, and accountants of Chemicals without paying a fee, and Chemicals paid the salary of Farms &’s only employee. Chemicals made regular informal advances to pay Farms &’s expenses. These payments reached $7.5 million by January 1975.
Thomas and Farms engaged in a scheme whereby they submitted fraudulent applications for agricultural subsidies from the federal government under the Uplands Cotton Program. As a result of these applications, the Commodity Credit Corporation, a government agency, paid over $2.5 million in subsidies to Thomas and Farms. After discovering the fraud, the federal government obtained criminal convictions against Thomas and Farms. In a separate civil action, the federal government obtained a $4.7 million judgment against Thomas and Farms, finding them jointly and severally liable for the tort of fraud. Farms declared bankruptcy, and Thomas was unable to pay the judgment. Because Thomas and Farms were insolvent, the federal government sued Chemicals to recover the judgment. Was Farms the alter ego of Chemicals, permitting the United States to pierce the corporate veil and recover the judgment from Chemicals? Did Thomas act ethically in this case?
4.    Generally, when the corporate privilege is abused for personal benefit or when the corporate business is treated in such a careless manner that the corporation and the shareholder in control are no longer separate entities, a court will require an owner to assume personal liability. Commingled assets, fraud, non-compliance with corporate formalities, and thin capitalization are among the circumstances that may justify piercing the corporate veil.

5.    This is a fun case that discusses piercing the corporate veil of a textile company.

http://www.sconet.state.oh.us/rod/docs/pdf/8/2004/2004-ohio-3613.pdf

Can you believe this case made it to the appeals level?

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