What is the Alter Ego Doctrine in Bankruptcy Law?
If you are considering corporate bankruptcy and any reference to the “alter ego doctrine” has come up, or there are reasons to anticipate the idea of “piercing the corporate veil” arising, it is important to learn more about how this doctrine could impact your business and your business bankruptcy case. This doctrine could be applicable under certain circumstances where businesses file for bankruptcy and creditors want to hold shareholders or members liable for particular debts. Given the complexity of US bankruptcy law, and the complications involved in corporate bankruptcies specifically, it is critical to work with a bankruptcy attorney who routinely handles business bankruptcy cases in South Florida. In the meantime, our West Palm Beach bankruptcy attorneys can tell you more about the alter ego doctrine and the effects it has in certain bankruptcy cases.
Understanding the Alter Ego Doctrine
The alter ego doctrine is a legal principle that relates to individual business owners becoming responsible for the business entity in some capacity — it relates to a situation in which there is no longer a clear and absolute distinction between the business entity and the shareholders or other owners of the company.
According to the Cornell Legal Information Institute (LII), the alter ego doctrine exists where a court “finds that a corporation lacks a separate identity from an individual or corporate shareholder” and then “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.” The LII further explains that “finding alter ego gives the court cause to pierce the corporate veil and hold individual shareholders personally liable for debts of the corporation.”
What is an Alter Ego for Bankruptcy Purposes?
Typically, the alter ego doctrine is applied in bankruptcy cases where the court believes that an individual is an “alter ego” of a business or vice versa — in short, an individual is the same as the business entity. This doctrine most often arises in cases where a party has been harmed by a corporation and wants to hold an individual shareholder or owner accountable.
When an individual who is “behind” a business becomes liable for the business’s debts, this is known as “piercing the corporate veil.” The alter ego doctrine is typically applied only when individual owners of a business have abused or exploited the business in some capacity. Courts make alter ego determinations after considering a range of factors, including the potential injustice if an individual is not held accountable for a corporation’s debts.
Contact a West Palm Beach Bankruptcy Attorney Today
If you have any questions about filing for business bankruptcy or any concerns about the corporate bankruptcy process more broadly or different types of bankruptcy for businesses, one of the experienced West Palm Beach bankruptcy lawyers at Kelley, Kaplan & Eller can speak with you today and can answer your questions. Contact us to learn more about the bankruptcy services we provide to businesses in South Florida.
Sources:
law.cornell.edu/wex/alter_ego
govinfo.gov/content/pkg/USCODE-2011-title11/html/USCODE-2011-title11.htm
