Piercing the Corporate Veil - Olmstead V Ftc

Piercing The Corporate Veil

Analysis of the 2010 Olmstead v. FTC case and the decisions rendered.

TABLE OF CONTENTS

INTRODUCTION 1

CASE REVIEW 1

CONCLUSION 3

Introduction

Piercing of the Corporate Veil is a legal decision which treats the duties of a corporation as the rights and/or liabilities of said corporation’s shareholders. Under normal circumstances, corporations exist as separate legal entities, and retain all responsibility for debts. However, under certain situations or circumstances, the veil which exists over a corporation may be lifted.

Shareholders can and will be found personally liable for their corporation’s misconduct in the following manners. Per the alter-ego doctrine, a corporation must comply with all of the formalities and laws of corporations themselves. Those that fail to keep an arm’s length distance from the corporation and its business are in violation of this law. The mixing of corporate funds with one’s personal funds would also result in shareholders being found personally liable. A parent company that undertakes the direction and business of a subsidiary company that it has opened also brings about questions. If the subsidiary is not allowed to operate independently, the parent, and shareholders of said parent, becomes personally responsible. Lastly, a corporation that is undercapitalized will cause problems for its shareholders. If a corporation has a small amount of assets, but spends far beyond its means, the impetus for debts and responsibilities lies with the shareholders. In the case of Olmstead v FTC, the Federal Trade Commission received restitution of over ten million dollar for what has been noted by many as nothing more than a credit card scam.

Case Review

Defendants Shaun Olmstead and Julie Connell started a credit card business. Customers would make a small payment in order to receive a platinum credit card with a...