Preserving LLC Veil Piercing: A Response to Bainbridge

Abstract:     
Veil piercing is the most litigated area of American corporate law. Corporate law's most dramatic revolution of the last quarter-century has been the emergence of the Limited Liability Company (LLC) as the dominant business form for small businesses. Veil piercing has now been widely recognized in the LLC context, but has recently come under attack from prominent business law scholars. This article offers the first thorough theoretical and policy defense of veil piercing in the LLC context. First, the article attempts to provide a short quantitative analysis of the actual record of courts regarding LLC veil piercing litigation. The record so far indicates that courts are not applying veil piercing in the LLC context in a substantially different way than they apply it in the corporate context. Second, the article takes up the arguments of LLC veil piercing critics. While many LLC statutes are indeed silent regarding whether the corporate veil piercing doctrine applies in the LLC context, evidence from the foreign antecedents of the LLC, on which some LLC statutes were explicitly based, provides a hint of legislative intent on the matter. Moreover, while veil piercing no doubt introduces some indeterminacies to the small business environment, abolishing the well-established doctrine in the LLC context would have the perverse effect of creating even greater indeterminacies. Finally, the article provides two novel efficiency justifications for LLC veil piercing. LLC veil piercing helps avoid exposing litigants to "unjust" laws and thus reduces their likelihood to "flout" other legal and regulatory regimes. LLC veil piercing also helps align properly settlement incentives for at-times recalcitrant defendants.

Number of Pages in PDF File: 46

Keywords: Corporations, Veil, Pierce, Piercing, LLC, Limited Liability Companies

Accepted Paper Series