Doren carried on a toy store business as a sole proprietorship.He incorporated Doren Toys Inc and transferred the business into the corporation.Later the same week,he signed a lease on behalf of Doren Toys with Patrice for a new store premises for the toy store business.The next week,he found a place he liked better and decided to try to figure out a way to get out of the lease with Patrice.He decided that he would transfer the business and all other assets out of the corporation and back to himself.Then he caused the corporation to default on the lease.This is a perfect plan because the corporation is the person who is liable to make the payments under the lease.If Patrice sues the corporation,she will get nothing.There is no possible way that she will be able to claim against Doren directly.

Question

Quizplus · Accepted Answer

Doren cannot simply transfer the business and all other assets out of the corporation and back to himself for the purpose of avoiding liability under the lease. This would be considered fraudulent conveyance and is illegal. Additionally, if Patrice can prove that Doren transferred assets out of the corporation to avoid liability under the lease, she may be able to go after Doren personally for the debt.

Doren Carried on a Toy Store Business as a Sole