Chapter 23

Alter Ego*

Daniel G. LentzLynda H. Schwartz

23.1 Definition of Alter Ego

(a) Legal Doctrine.

The establishment of separate legal entities with limited liability—corporations, limited liability partnerships, and similar entities—has long been considered one of the foundations of capitalism and economic growth in the United States.1 In these structures, although shareholders risk exposure of losses up to the amount of their investments, they usually have immunity against the liabilities of the corporation itself. Although the laws regarding corporations and similar entities vary by state, courts nationwide respect the well-established concept of shareholder immunity, also known as the corporate veil.

Alter ego, or piercing the corporate veil, describes the doctrine and situations in which U.S. courts set aside shareholders’ immunity from corporate liabilities and allow plaintiffs to obtain a judgment and recovery against the owners of a corporation. This doctrine allows the court to set aside the protection of the corporate veil and hold those persons who control the corporation individually responsible, whether those owners are corporations, partnerships, individuals, or other forms of organization. Typically, alter ego findings involve closely held corporations, meaning they have limited ownership groups dominated by one or a few large shareholders.

In most litigation, a plaintiff must prove some legal connection with a defendant to have the standing to sue and obtain ...

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