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1. The corporate accountant could testify that the corporation was not undercapitalized at the time of its inception.
2. The corporation is by no means a sheer instrument to avoid responsibilities and for the benefit of Jones personally.
Theory & Reasoning:
Suits to pierce the corporate veil often occur when the separate existence of the corporation fails to maintain. In such case, the corporation is but a later ego or instrument of its dominant shareholder or another corporation, who should therefore be personally liable for its debts.
Mere proof of an attempt to avoid personal liability on the part of the shareholders does not justify piercing the corporate veil, because the law recognizes the separation of the corporation from its shareholders.
Some factor is of significance in a successful piercing of corporate veil, such as 1) undercapitalization, 2) failure to observe corporate formalities, 3) nonpayment of dividends, 4) siphoning of corporate funds by the dominant stockholders, 5) nonfunctioning of other officers or directors, 6) absence of corporate records, 7) use of the corporation as an instrumentality for the operation of the dominant stockholders and 8) use of the corporate entity in promoting injustice or fraud.
In this case, the appellant contended the corporation was undercapitalized. However, it is the undercapitalization at the time of the inception of the corporation rather than at the time he lent money to it that really counts. The corporate accountant’s certification had made it clear that the undercapitalization factor did not function in this case.
Besides, although the bylaw was not fully carried out, there is no evidence that can prove the liability-causing activity occurred only for the benefit of the shareholders or corporate fund had been gutted.
So it is hard to require the disregarding of corporate entity.
Judgment:
The first-trial judgment was affirmed.
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