. Define the term “alter-ego” and list the elements the court considered when determining whether to pierce the corporate shield.
In addition, discuss whether it is ethical for a company to move its corporate headquarters overseas to avoid paying income tax. Which duty do you believe is higher, the duty of corporations to pay tax to government or the duty of corporations to pay dividends to shareholders? Why?
Specific Instructions:
1. Paper must be written in a coherent manner.
2. Check grammar and spelling. Very important! Please do not omit words in sentences!
3. Proper in-text citation and references is a must!
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DO NOT USE ANY SOURCES EXCEPT FOR THE FOLLOWING:
Please use find-law.com to research case.
Other credible sources:
1) Hals-Kelchner, Hanna. (2006). The business guide to legal literacy: what every manager should know about the law. [Books24x7 version] Retrieved from
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Appendix C – The Lessons of Sarbanes-Oxley
2) The Sarbanes-Oxley Act
3) Maffei, S. (2011). Personal Liability of Corporate Shareholders in New York. Review Of Business, 31(2), 110-114. Retreived from http://search.ebscohost.com.ezproxy1.apus.edu/login.aspx?direct=true&db=bth&AN=66249887&site=ehost-live
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Alter Ego
Corporations and limited liability companies offer limited liability to their shareholders and members. This means that if the company is sued the creditor cannot look to the assets of the shareholders in order to satisfy a judgment. If the company does not have sufficient assets to cover the judgment, the creditor is out of luck. The most a shareholder can lose is the amount of money she has invested in the company. However a business owner needs to do more than merely file a form with the secretary of state and create the corporation in order to create this shield of liability protection. If a company is deemed to be one and the same as the business owner, or owners, the court will allow the creditor to pierce the corporate shield. A company that is found to be merely the alter ego of the business owner will not offer any liability protection for the owner. The materials this week will illustrate ways to ensure a company is not operated as the alter ego of the business owner.
Sarbanes Oxley
Most students have heard of the Enron scandal, where egregious accounting practices resulted in the loss of billions of dollars. As a result of this, and other scandals like WorldCom and Tyco, Congress enacted the Sarbanes-Oxley act of 2002. This Act creates strict accounting practices and creates accountability to the CEO and CFO of the financial statements. Penalties for non-compliance are harsh, and include steep fines, imprisonment and the desisting of the company from the stock exchange. All public companies must comply with this Act.
Legal Concepts v. Laws
There is a difference between a general legal concept and a law. An example of a law would be the Sarbanes Oxley Act. This is a federal law: Sarbanes-Oxley Act of 2002, PL 107-204, 116 Stat 745. An example of a general legal concept is alter ego; it will not be found in any federal or state code books. This is a legal concept used to bring liability to a shareholder of a corporation or LLC. For the purposes of this class laws are found (codified) in state statutes, federal statutes, and federal regulations. General legal concepts are not codified.
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