14 Jun Question Cathy, an electrical contractor, sets up a corporation in which she is the sole stockholder
Question
Cathy, an electrical contractor, sets up a corporation in which she is the sole stockholder and president. Her husband, Claude, is the secretary and both she and her husband serve on the corporation’s board of directors as its only two members. Cathy, who was a sole proprietor before incorporating her company, continues to run her business exactly as before. She pays company debts out of her personal checking account and deposits all checks payable to the company in her personal checking account. In addition, she does not consult her husband on any business decisions or hold regular meetings of the board of directors. She does, however, hold yearly stockholder’s meetings and votes to re-elect herself and her husband as directors; her husband dutifully records the minutes of these meetings.
A. Does the fact that there is only one shareholder invalidate this corporation?
B. If the corporation becomes insolvent, will Cathy be sheltered against personal liability from the debts of the corporation? Explain fully.
C. Assume that Cathy and Claude run the corporation as a bonafide organization, keeping proper records of all necessary meetings and carefully avoiding the commingling of corporate and private funds. How would you classify this corporation in the state that it is organized and in which Cathy does business?
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