Reference no: EM133921067

Assignment:

Four years ago, Sridhar decided to follow his true passion and open a motorcycle repair shop in his local neighborhood. He had researched online and knew that he needed to form a legal entity to run the business, and he settled on forming it as a corporation in his home state, which follows the Model Business Corporation Act (MBCA). But before filing the proper incorporation paperwork, he got fixated on making sure he had all the motorcycle repair parts he would need to fix a wide range of motorcycles. As a result, his first step in establishing his motorcycle repair shop business was to purchase various motorcycle parts from Partz and Thingz, a local motorcycle parts provider, for a total cost of $10,000. Paula, the owner of Partz and Thingz, could tell that Sridhar was nervous about paying so much for the parts, so Paula offered to let Sridhar pay off his bill in installments over time. Paula handed Sridhar a contract that included the terms of the payment plan, which Sridhar agreed to by signing his name, followed by "for a corporation to be formed later."

The following year, Sridhar officially incorporated his motorcycle repair business in his home state, which follows the MBCA. He named the company "Busted Bikes Better, Inc." To operate its business, the corporation rented a garage from Greasy Garages for a lease term of 15 years, which was the shortest lease term available in the local market. During its first year of operation, the corporation's business was slow but increasing month by month. Sridhar took a salary from the corporation that was based on net earnings (i.e., revenue minus expenses). While he kept detailed records of customer transactions, Sridhar did not follow corporate formalities. He never held a shareholders' or directors' meeting. In the second year of the business, things slowed down again, and Sridhar was forced to close the business. At the time the business closed, Sridhar still had $5,000 remaining due on his repayment plan for the motorcycle parts from Partz and Thingz.

Question 1: Can Greasy Garages pierce Busted Bikes Better, Inc.'s corporate veil to recover its rent from Sridhar in his personal capacity?

Question 2: Can Partz and Thingz recover the $5,000 remaining due on Sridhar's repayment plan from Sridhar personally?