Also known as:alter ego · alter-ego · alter-egos · alter-ego doctrine · piercing the veil
Written by attorneys · grounded in primary & secondary sources — see below
An equitable doctrine permitting a court to disregard the separate legal existence of a corporation or limited liability company. The doctrine applies when owners have so commingled the entity's affairs with their own that the entity lacks an independent existence and adherence to the fiction of separateness would sanction fraud or promote injustice.
Sources & Authorities
How it applies
Common Examples
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Commingled Funds and Undercapitalization
Alpine Mining operated with only minimal capital and no separate bank account from its sole shareholder Austin Abbott. Abbott regularly paid personal expenses directly from company funds and ignored all corporate recordkeeping. When a supplier obtained a judgment against Alpine Mining that the entity could not satisfy, the court disregarded the corporate form because the unity of interest between Abbott and the company was complete and separate existence would promote injustice.
Shell Entity Used to Avoid Liability
Atlas Ventures was formed with nominal capital and never observed any corporate formalities. Its controlling shareholder Adam Anderson used the entity solely to shield personal assets from contracts he had guaranteed. After Atlas Ventures defaulted and became insolvent, creditors reached Anderson's personal assets because the company functioned as his mere instrumentality and respecting the form would sanction injustice.
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Cases
Study Supplements
Undercapitalization Without Fraud
Apex Dynamics incorporated each of its taxis as a separate entity with minimal assets. When one taxi injured a pedestrian, the victim sought to hold the individual shareholders liable solely because of undercapitalization. The court refused to pierce the veil because the corporations were not shown to have been used to perpetrate fraud or operated as the shareholders' alter egos for personal benefit.
Labor Alter Ego in Operations
Astra Aerospace created a second corporation to handle painting and packaging while keeping all operations at the same facility under common ownership and control. When painters struck, the union sought to picket both entities. The court treated the second corporation as the alter ego of the first because their separate identities were maintained primarily to affect labor relations.
Common questions
Frequently Asked
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What factors show the unity of interest required for alter ego liability?+
Courts examine commingling of funds, failure to maintain corporate formalities, undercapitalization, and whether one entity treats the assets of another as its own. These factors together demonstrate that the separate personalities of the corporation and its owners no longer exist.
Supporting sources
Is undercapitalization alone enough to pierce the veil under the alter ego theory?+
No. Undercapitalization by itself does not justify disregarding the corporate form. A plaintiff must also show that the entity was used to perpetrate fraud or operated as the alter ego of its owners for their personal benefit.
Supporting sources
What is the second prong of the alter ego test?+
Even when unity of interest exists, the court must find that adherence to the fiction of separate corporate existence would sanction fraud or promote injustice. This equitable requirement prevents veil piercing based solely on ownership control.
Supporting sources
Does failure to observe formalities automatically create alter ego liability for an LLC member?+
No. Statutes provide that failure to observe formalities relating to management is not a ground for imposing personal liability on a member. Additional evidence of commingling or use of the entity to perpetrate injustice is required.
Supporting sources
561 U.S. 287, 302-03 (2010)Alternative Dispute Resolution
…can bring a breach-of-contract claim under LMRA § 301(a) against Local as a CBA signatory, and against IBT as Local's agent or alter ego. See Brief for Respondent IBT 10-13; Reply Brief for Petitioner 12-13, and n. 11.[^maj-15] The question is whether Granite Rock may also bring a federal tort claim under § 301(a) for IBT's…
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