Spence was a promoter in the incorporation of a new business. The new corporatio

Question

Spence was a promoter in the incorporation of a new business. The new corporation had not yet been formed when he bought Huffman's employment agency to serve as the nucleus of that corporation. Eventually, the corporation was formed, but it never generated enough cash to pay Huffman for the employment agency. Huffman sued Spence, attempting to hold him personally liable for the amount due. Spence claimed that the corporation was liable and that his personal assets were not a proper target of the suit. Was Spence correct? Explain.

Explanation / Answer

Spence is correct in this situation. Just because Huffman's employment agency did not have enough cash to operate does not mean it is in any way Spence's fault. It would be Huffman's fault if anyone's. Take for example a lemonade stand. Two people are trying to make a business out of it. One day business was so bad that one of them decided they could no longer afford to make the lemonade. Could the other person sue them? No of course not, that is merely how the business world works, if you do not have enough case you cannot blame it on others only yourself or your own business. So in this case Spence would not be held liable for any debts or lack of funds and Huffman would be at a loss.

Hope this helps, good luck.

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