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Law
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Case Study
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Business Law: Limited Liability of Shareholders (Case Study Sample)

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36.2 Limited Liability of ShareholdersJoseph M. Billy was an employee of the USM Corporation (USM), a publicly held corporation. Billy was at work when a 4,600-pound ram from a vertical boring mill broke loose and crushed him to death. Billy's widow brought suit against USM, alleging that the accident was caused by certain defects in the manufacture and design of the vertical boring mill and the two moving parts directly involved in the accident, a metal lifting arm and the 4,600-pound ram. If Mrs. Billy's suit is successful, can the shareholders of USM be held personally liable for any judgment against USM? 36.4 Corporation Hutchinson Baseball Enterprises, Inc. (Hutchinson, Inc.), was incorporated under the laws of Kansas. Among the purposes of the corporation, according to its bylaws, were to “promote, advance, and sponsor baseball, which shall include Little League and Amateur baseball, in the Hutchinson, Kansas, area.” The corporation was involved in a number of activities, including leasing a field for American Legion teams, furnishing instructors as coaches for Little League teams, conducting a Little League camp, and leasing a baseball field to a local junior college for a nominal fee. Hutchinson, Inc., raised money through ticket sales to amateur baseball games, concessions, and contributions. Any profits were used to improve the playing fields. Profits were never distributed to the corporation's directors or members. What type of corporation is Hutchinson, Inc.? 36.8 Promoters' Contracts Martin Stern, Jr., was an architect who worked in Nevada. Nathan Jacobson asked Stern to draw plans for Jacobson's new hotel/casino, the Kings Castle at Lake Tahoe. Stern agreed to take on the project and immediately began preliminary work. At this time, Stern dealt directly with Jacobson, who referred to the project as “my hotel.” One month later, Stern wrote to Jacobson, detailing, among other things, the architect's services and fee. The two men subsequently discussed Stern's plans and set Stern's fee at $250,000. Three months later, Jacobson formed Lake Enterprises, Inc. (Lake Enterprises), a Nevada corporation of which Jacobson was the sole shareholder and president. Lake Enterprises was formed for the purpose of owning the new casino. During this period, Stern was paid monthly by checks drawn on an account belonging to another corporation controlled by Jacobson. Stern never agreed to contract with any of these corporations and always dealt exclusively with Jacobson. When Stern was not paid the full amount of his architectural fee, he sued Jacobson to recover. Jacobson claimed that he was not personally liable for any of Stern's fee because a novation had taken place. Who wins? source..
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36.2 Limited Liability of Shareholders
M. Billy is an employee of USM Corporation and is hurt and dies in line of duty. The law stipulates that employers are liable for the acts of employees done in course of their employment if it is a class of acts which he (employee) is expressly or impliedly authorized to do. In this case, Billy is under duty of care from USM Corporation and that Mrs. Billy has an actionable case. If successful, the company will be liable for the acts. The company law recognizes a company as a separate legal entity from its shareholders Ref: Salomon vs Salomon case (1897) (Conyngton, 2000) As such, the company is a legal person who can enter contracts, who can sue and be sued and can own property. The shareholders of a limited corporation have limited liability and as such they shall be held liable to contribute towards the liabilities of the company during its life time or winding up only to the extent of shares taken by him and only to the balance of the shares taken by him or up to the guarantee given by him or both. In this regard, members cannot be asked to pay more than what is unpaid on the shares of the company held by them even though the assets are not sufficient to satisfy the claims of creditors. The personal property of a shareholder cannot be attached to for the debts of the compa...
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