Discuss how a corporation is terminated. Identify four circumstances that might persuade a court to pierce the corporate veil
Ordinarily, terminating a corporation is a three-step process. First, the directors recommend to the shareholders that the corporation be dissolved, and a majority of the shareholders agree. Second, the corporation files "Articles of Dissolution" with the Secretary of State. Third, the officers of the corporation pay its debts and distribute the remaining property to shareholders. When this winding up is completed, the corporation ceases to exist. Alternatively, the Secretary of State may dissolve a corporation that violates state law or a court may dissolve a corporation if it is insolvent or if its directors and shareholders cannot resolve conflict over how the corporation should be managed.
Courts generally pierce the corporate veil in four circumstances: (1) Failure to observe formalities, such as holding shareholders' meetings or keeping minute books; (2) commingling of assets of the corporation and the shareholders; (3) inadequate capitalization; and/or (4) fraud.
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