The Doctrine of Piercing the Veil in an Era of Multiple Limited Liability Entities: An Opportunity to Codify the Test for Waiving Owners' Limited Liability Protection

48 Pages Posted: 8 Jul 2011

See all articles by John H. Matheson

John H. Matheson

University of Minnesota Law School

Raymond Eby

Faegre & Benson LLP

Date Written: January 1, 2000

Abstract

The use of the corporate form of business organization has always provided a firm's owners/shareholders with a presumptive shield from personal liability for the debts of the business. Case-by-case exceptions to this limited-liability shield have developed in each state under the general rubric of "piercing the veil." Courts and commentators alike have noted the vagueness of the piercing analysis and have questioned the appropriateness of some of the factors employed in that analysis. In addition, new forms of business entities, such as limited liability companies and limited liability partnerships, have been legislatively created over the past several decades, raising the issue of whether and by what standards their limited-liability shields will be pierced. This is an opportune time to reexamine the piercing doctrine and to provide a uniform standard for all forms of limited liability entities. The authors propose a Model Statute to replace the current common-law doctrine for determining when piercing will take place. under the Model Statute, piercing is limited to situations in which the business owner (1) misrepresents the assets of the business, (2) engages in self-dealing transactions, or (3) takes assets from the business under circumstances that render the business insolvent. In the latter two situations, the owner's liability is limited to the amount received by the owner in excess of the value given in return unless the owner knew or should have foreseen that the transfer would result in the insolvency of the business.

Suggested Citation

Matheson, John H. and Eby, Raymond, The Doctrine of Piercing the Veil in an Era of Multiple Limited Liability Entities: An Opportunity to Codify the Test for Waiving Owners' Limited Liability Protection (January 1, 2000). Washington Law Review, Vol. 75, p. 147, 2000, Available at SSRN: https://ssrn.com/abstract=1874252

John H. Matheson (Contact Author)

University of Minnesota Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States
612-625-3879 (Phone)

Raymond Eby

Faegre & Benson LLP ( email )

370 17th St., #2500
Denver, CO 80202
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
92
Abstract Views
798
rank
307,822
PlumX Metrics