Detailed Answer
(b) The court will disregard the corporate entity and
hold the shareholders individually liable when the corporate form
is used to perpetrate a fraud or is found to be merely an agent or
instrument of its owners. An example of when the corporate veil
is likely to be pierced is if the corporation and its shareholders
commingle assets and financial records. In such a situation, the
shareholders lose their limited liability and will be held personally
liable for the corporation’s legal obligations. Answer (a) is incorrect
because the election of S corporation status is allowable under
the law and is not, in itself, grounds for piercing the corporate
veil. Answer (d) is incorrect because the desire of shareholders
to limit their personal liability is a valid reason to form a corporation.
Limited personal liability is one advantage of the corporate
entity. Answer (c) is incorrect since the court will hold personally
liable only those corporate officers responsible for the commission
of an ultra vires act. The court will not pierce the corporate
veil and hold the shareholders personally liable for such an
act.