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Stark v. Flemming

    Brief Fact Summary. Stark (P) started a corporation and paid herself wages so she could qualify for Social Security.

    Synopsis of Rule of Law. If corporate formalities have been observed, the form cannot be dismissed unless statutes say otherwise.

    Facts. Stark (P) held her assets in the newly formed corporation. It operated her duplex and farm, she paid herself a $400 monthly salary. Flemming (D) secretary of Health, Education, and Welfare (HEW) denied Social Security on the claim that Stark’s (P) corporation was a sham. The district court favored Flemming (D). The court agreed with Flemming (D) that Stark’s (P) only purpose for incorporating was to secure Social Security benefits.

    Issue. If unmentioned by statute, can a form be dismissed if the corporation was founded merely to qualify for government benefits?

    Held. (Per Curiam) No. If Congress has not specified policy, then the benefits cannot be withheld. Stark (P) followed all corporate formalities regardless of motive. Flemming (D) may make an independent appraisal of Stark’s (P) salary to determine excess and make comparisons to other similar businesses. The judgment of the district court is vacated and remanded for further proceedings.

    Discussion. In Stark, corporate form, in principal cannot be dismissed. Motive is irrelevant. Incorporation cannot be dismissed by motive. Legitimate business purposes are not required. There must be more compelling reasons to “pierce the corporate veilâ€.



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