2 Discussion Replies 3

Question Description

Instructions: Replies to the students below must be substantive and add to each individual discussion and overall classroom discussion in a minimum of 200words. See the original discussion question below to better understand the topic.

Student 1:Gabrielle

Hello class,

Alter ego liability is when someone has a corporation that does not suppose to have legal ties to a person yet they do, and the used the corporation a liability shield. For example, When someone is a part of the LLC yet, they are making personal financial transactions through the company. According to Dictionary Law (n.d.) alter ego is defined as “a corporation, organization or other entity set up to provide a legal shield for the person actually controlling the operation.”

I researched the case John K. BUSHNELL, Third-Party Plaintiff and Respondent, v. Dale K. BARKER, Third–Party Defendant and Petitioner. Bushnell made a contractional agreement with Barker Co. for them to do his taxes. Within that contract, it states “nondefaulting party shall be entitled to all costs and attorneys’ fees incurred in enforcing this Agreement”(Justice Lee, 2012). Bushnell felt like the Barker Co. was not doing a good job, so he discontinued payments. Dale Barker sued Bushnell for breach of contract. Bushnell countered Barker’s breach of contract and sued for negligence. Bushnell filed a third-party complaint as well claiming Barker Co. is Barker’s alter ego. Bushnell won his case except for the third party alter ego. There was not enough evidence presented in the case to make a claim that Barker was using Barker Co. as an alter ego. If Barker were guilty of alter ego, then it would make him the defaulting party which would make him not have to pay for attorney fees. Justice Lee ordered Barker and Bushnell to pay for their own attorney’s fees in the in.


Hill, G and K. (n.d.) Alter Ego. The People’s Law Dictionary. Retrieved from https://dictionary.law.com/Default.aspx?selected=2…

Lee, J. (2012) Supreme Court of Utah: John K. BUSHNELL, Third–Party Plaintiff and Respondent, v. Dale K. BARKER, Third–Party Defendant and Petitioner.Caselaw. Retrieved from http://caselaw.findlaw.com/ut-supreme-court/159709…


Maffei (2011), explains that business owners often form corporations. These corporations are legally independent from the owner. Sometimes business owners misuse this protection. If the business owner or owners exercised complete control over the corporation, it may simply be acting as an alter-ego for the owner(s). This distinction doesn’t usually matter unless the business owner also uses the their control over the business to commit fraud or cause harm (Maffei, 2011). If someone sues the corporation, they may request that the court “pierce the corporate veil” (Maffei, 2011), and hold the business owners responsible. One example of this is the 2013 case of United States v. Peters (2018). In this case, it was found that Peters and his wife owned and operated several businesses, all of which fell under their World Auto Parts, Inc (WAPI). WAPI was owned by only four people, with Peters and his wife owning 98% of the corporation. Clearly, Peters had total control over the business. As to the fraud, Peters took out a revolving line of credit for millions of dollars from Chase bank. Under the agreement with Chase, Peters was allowed to borrow up to 85% of the value of his companies’ accounts receivable. Peters then fraudulently inflated his business accounts to make it appear that there was more funds in accounts receivable so he could borrow more money. He then diverted much of the money to a separate account, instead of paying off the loan.

On the surface, the question of which duty is higher, a corporation’s duty to pay tax to their own government or the duty to pay dividends to shareholders, seems easy to answer. Most would simply say that they have a duty to their country to pay taxes. But how much is too much? At what point would those taxes become burdensome and prevent the company from being profitable? If taxes are likely to make a company unprofitable, why should anyone invest in them? Prior to the recent change in tax code, the largest companies in the U.S. faced a 35% tax. If the profits are distributed as dividends, they would then be taxed again, usually as an additional 20%, on the individual shareholders tax returns (Murray, 2018). With this double tax, it wouldn’t make much sense to invest in business. By lowering taxes, the government has incentivized business to remain or return to the U.S., like Apple is doing. Thanks to the change in tax code, and the reduction to the corporate tax rate, Apple is bringing the majority of the $252 billion is has overseas to the U.S. This movement will incur a tax payment of $38 billion, and a direct impact on the U.S. economy of $350 billion over the next five years (Chen & Wakabyashi, 2018). The government isn’t wrong to tax businesses in the U.S., but if those taxes get too high, those businesses have a responsibility to protect themselves and their shareholders.



Chen, B., & Wakabyashi, D. (2018). Apple, Capitalizing on New Tax Law, Plans to Bring Billions in Cash Back to U.S.. Nytimes.com. Retrieved 22 March 2018, from https://www.nytimes.com/2018/01/17/technology/appl…

Maffei, S. (2011). Personal Liability of Corporate Shareholders in New York. Review Of Business, 31(2), 110-114. Web.a.ebscohost.com.ezproxy1.apus.edu. Retrieved 21 March 2018, from http://web.a.ebscohost.com.ezproxy1.apus.edu/ehost…

Murray, J. (2018). Learn About Corporate Tax Rates and How to Calculate What You Owe. The Balance. Retrieved 21 March 2018, from https://www.thebalance.com/corporate-tax-rates-and…

United States v. Peters. (2018). Findlaw. Retrieved 21 March 2018, from http://caselaw.findlaw.com/us-2nd-circuit/1646285….

ORIGINAL Classroom discussion:

“Prompt: Using findlaw.com, (http://caselaw.findlaw.com/) research a case that involves alter-ego liability. In 250 words, define the term “alter-ego” and list the elements the court considered when determining whether to pierce the corporate shield. Incorporate the material from the required readings and support your statements.

In addition, discuss whether it is ethical for a company to move its corporate headquarters overseas to avoid paying income tax. Which duty do you believe is higher, the duty of corporations to pay tax to government or the duty of corporations to pay dividends to shareholders? Why?

Instructions: Incorporate the material from the required readings along with scholarly outside research. All sources used must be cited. Please review the grading rubric that is posted in the lessons.”

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