Piercing the Corporate Veil

by Philip D. Robben, Kelley Drye, with Practical Law Corporate & Securities

A Practice Note on piercing the corporate veil explores the legal doctrines that allow plaintiffs to hold parent companies liable for the obligations of their subsidiaries. It delves into the alter ego and agency theories, offering insights into the standards of proof required to succeed in piercing claims. The document outlines the reasons plaintiffs pursue these claims, such as accessing parent company assets and establishing jurisdiction, and highlights the potential use of piercing claims as leverage in settlement negotiations. It also examines reverse veil piercing, discussing insider and outsider claims, and the risks they pose to subsidiary creditors. The Practice Note provides best practices for parent companies to minimize liability exposure, emphasizing the importance of maintaining corporate formalities and ensuring subsidiaries operate independently. Additionally, it addresses the burden of proof for piercing claims, noting variations between jurisdictional and liability purposes. The document also touches on the implications for LLCs, highlighting differences in how courts approach piercing claims against these entities compared to corporations.