Published in Law360 on February 22, 2023. Copyright 2023, Portfolio Media, Inc., publisher of Law360. Reprinted here with permission.
But something that gets the idea of investors, once immune from liability for company bad acts, are now finding themselves targets of AGs
Over the last few years, private equity firms and other investors have sought to take on a more active role in the management of the companies they purchase, hoping to ensure the success of the businesses in which they have acquired an interest.
But that new, active role comes with risk. State attorneys general and others are ready to test the limits of the law surrounding the corporate form, and recent enforcement activity and litigation suggests they could be successful.
Traditional Rules of Limited Liability
According to the 2003 U.S. Court of Appeals for the Ninth Circuit decision in Dole Food Co. v. Patrickson, “A basic tenet of American corporate law is that the corporation and its shareholders are distinct entities.”[1]
Under this theory of corporate separateness, shareholders are not generally liable for the debts and wrongdoings of the corporation,[2] and this principle applies whether those shareholders are individuals or are themselves corporations.[3]
Not only is it perfectly legal to adopt the corporate form or another limited liability structure for the express purpose of limiting the liability of a company’s owners,[4] but the creation and adoption of this doctrine...
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