[Shaky Bicycles] Lena Is an Incorporator Who Filed the Articles

question 53

Multiple Choice

[Shaky Bicycles] Lena is an incorporator who filed the articles of incorporation for XYZ Corporation, a corporation set up to sell bicycles. Lena incorrectly put the wrong street address in the document. Preetha, a manufacturer of bicycle parts, had sold a number of parts to XYZ Corporation. Unfortunately, the corporation was not making any profit, and Preetha was not paid in a timely manner. She checked the status of the corporation and discovered Lena's error. Preetha then claimed that the shareholders of XYZ Corporation were personally liable to her. Amy, another creditor of XYZ Corporation, also claimed that a shareholder, Rick, was personally liable to her. Amy alleged that Rick committed fraud against her when he told her that XYZ Corporation was making large amounts of money, that if she would only loan $50,000 to the corporation he would marry her, and that the corporation would make so much money that she would be wealthy in six months. She loaned the funds, but the corporation has been unable to pay her. Rick told her that he is sorry, but that her only avenue of recovery is through the corporation.
-What, if any, is Amy's best theory in order to hold Rick personally liable to her, assuming XYZ's corporate status is in place?

• A) That the corporate veil should be pierced because Rick committed fraud through the corporation.
• B) That in equity Rick should be held personally liable.
• C) That Rick should be personally liable because of his status as a shareholder.
• D) That Rick should be personally liable because he acted on behalf of the corporation in soliciting the funds.
• E) Because of XYZ's corporate status and her responsibility to investigate the situation, she will not be able to hold Rick personally liable to her.

---

Definitions:

Perfectly Competitive

Referring to a market structure where there are many buyers and sellers, all selling homogeneous products, with no barriers to entry or exit, leading to price determination by supply and demand forces alone.

Monopolistically Competitive

A marketplace setup in which various enterprises deal in goods that are alike but not identical, affording them some degree of control in the market.

Cost Curves

Graphical representations showing the relationship between the cost of producing goods or services and the quantity produced.

Optimal Scale

The size of a company or level of production that minimizes costs and maximizes efficiency and profit.