Collin Texas Jury Instruction - 1.9.5.2 Subsidiary As Alter Ego Of Parent Corporation
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FAQ
Under the doctrine of alter ego (also known as piercing the corporate veil), individuals may be liable for the actions of their corporations in certain circumstances.
If the parent company is sued, its ownership interests in subsidiary businesses are considered the company's personal property. Creditors can attempt to attach ownership interests in other businesses and, depending upon the debt collection laws in the state where the lawsuit is filed, may or may not succeed.
A subsidiary is a legal entity that issues its own stock and is a separate and distinct operating business that is owned by a parent company. The stock of the subsidiary is an asset on the balance sheet of the parent company.
As a general matter, a parent company will not be liable on a contract signed by its subsidiary simply because it is a wholly-owned subsidiary. Sometimes, however, it is possible to establish some other basis for binding a parent to its subsidiary's agreement.
Alter ego is a legal doctrine whereby the court finds that a corporation lacks a separate identity from an individual or corporate shareholder. The court applies this rule to ignore the corporate status of a group of stockholders, officers, and directors of a corporation with respect to their limited liability.
Definition. Legal doctrine whereby the court finds a corporation lacks a separate identity from an individual or corporate shareholder, resulting in injustice to the corporation's debtors.
As a general rule a parent company cannot be held liable for its subsidiary's debts. The only exception is when: The subsidiary is a joint stock company or a limited liability company. The parent company is the sole shareholder of its subsidiary.
Special Considerations. As noted above, a subsidiary is a separate legal entity for tax, regulation, and liability purposes. Parent companies can benefit from owning subsidiaries because it can enable them to acquire and control companies that manufacture components needed for the production of their goods.
There are, nevertheless, two general requirements: (1) that there be a unity of interest and ownership that the separate personalities of the corporation and the individual(s) no longer exists, and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow.
The alter ego doctrine refers to a rule of law developed by the courts that allows for the obligations of a corporation to be treated as those of its shareholders. The alter ego doctrine disregards the separate legal existence of the corporation, and therefore is sometimes described as piercing the corporate veil.
