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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Business Law
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Experience:  All corporate law, including non-profits and charitable fraternal organizations.
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Can a company divide itself into many separate LLCs, to limit

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Can a company divide itself into many separate LLCs, to limit liability so that if one part of the company gets sued, the other parts can remain unaffected? It would be helpful to get some citations to cases discussing companies who successfully and unsuccessfully limited their liability in this way. Thank you.
Submitted: 4 years ago.
Category: Business Law
Expert:  Law Educator, Esq. replied 4 years ago.
This happens frequently where one company sets up numerous subsidiaries. As far as case law, there are thousands of cases out there. The issue is "piercing the corporate veil" which is when a company does not follow corporate formalities, commingles funds amongst all the companies, does not have adequate funding/insurance or does not keep corporate records. Just having the same officers or managers or common financing is something the court looks at in piercing the veil, but it is not in and of itself grounds to pierce the corporate veil. They have whole volumes of books written on piercing the corporate veil and it is a very complex topic.

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Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 91785
Experience: All corporate law, including non-profits and charitable fraternal organizations.
Law Educator, Esq. and 11 other Business Law Specialists are ready to help you
Customer: replied 4 years ago.
I accepted your answer, but will accept again if you would please provide me with a case citation or two to help me get started. I'd like to see a case that sets forth the test for determining the "corporate veil piercing" issue. Thank you.
Expert:  Law Educator, Esq. replied 4 years ago.
Here is a starting point, but legal research is extremely expensive (westlaw and lexis cost over $100 per hour for access), and also you can check http://www.findlaw.com by checking "corporate veil" for your particular state court rulings as well.

The corporate structure is an artificial construct of the law, a substantial purpose of which is to create an incentive for investment by limiting exposure to personal liability. "The insulation of a stockholder from the debts and obligations of his corporation is the norm, not the exception." NLRB v. Deena Artware, Inc., 361 U.S. 398, 402-03, 80 S.Ct. 441, 443-44, 4 L.Ed.2d 400 (1960) (citations omitted). In extreme circumstances, however, the corporate form will be disregarded and the personal assets of a controlling shareholder or shareholders may be attached in order to satisfy the debts and liabilities of the corporation. However, the corporate veil should be pierced only reluctantly and cautiously. Cascade Energy and Metals Corp. v. Banks, 896 F.2d 1557, 1576 (10th Cir.), cert. denied, 498 U.S. 849, 111 S.Ct. 138, 112 L.Ed.2d 105 (1990). Piercing the corporate veil is an equitable action and as such is reserved for situations where some impropriety or injustice is evident.

If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons.... The corporate veil may not be pierced absent a showing of improper conduct. 1 Charles R.P. Keating & Gail O'Gradney, Fletcher Cyclopedia Corporations, Sec. 41 at 603 (1990 ed.) (footnote omitted); see 18 C.J.S. Corporations Sec. 10 at 277 (1990) ("Generally, a corporation is a legal entity, ... and such legal entity may not be disregarded except where equitable considerations require piercing the corporate veil."); 18 Am.Jur.2d Corporations, Sec. 44 at 843-44 (1985).

("[D]isregard of the corporate entity may be invoked if this is necessary to preserve, protect or enforce [substantial rights rather than mere matters of organization], in other words to prevent an injustice.") (footnote omitted). As the NLRB has set out: "the corporate veil will be pierced whenever it is employed to perpetrate fraud, evade existing obligations, or circumvent a statute." Riley Aeronautics Corp., 178 NLRB 495, 501 (1969) (citations omitted).

Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 91785
Experience: All corporate law, including non-profits and charitable fraternal organizations.
Law Educator, Esq. and 11 other Business Law Specialists are ready to help you

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