Under what condition may courts allow personal liability of stockholders?

The correct answer is rooted in the principle of "piercing the corporate veil." This legal concept allows courts to hold shareholders personally liable for corporate debts when the corporation has been used as an instrument of fraud. In cases where the actions of the shareholders or the corporation itself have led to misconduct or fraud—such as misrepresenting the company’s financial status or using the corporate entity to shield personal assets from creditors—courts may disregard the corporation's separate legal personality. This is aimed at preventing shareholders from abusing the limited liability protection afforded by the corporate structure, particularly when the corporate form is exploited to perpetrate fraud.

The other conditions mentioned do not typically meet the threshold necessary for personal liability of stockholders. For instance, simply having corporate debts that exceed a certain percentage of capital is not sufficient to establish personal liability without evidence of fraud or wrongdoing. Similarly, a controlling stake in multiple corporations does not, by itself, justify personal liability unless those corporations are being used in a way that suggests fraudulent intent or misconduct. Lastly, failing to distribute dividends is a business decision and does not create personal liability for stockholders, as the right to dividends is typically dependent on the discretion of the board of directors and the financial status of the corporation.