Since corporate minutes are a first
line of defense, they should include resolutions regarding the
Approval of large contracts
Compensation of officers
Acquisition or sale of significant assets
Designation of banking institutions
Approval of guarantees
Declarations of dividends
Approval of loans
Adoption of employee benefit plans
Authorization to sign documents and checks
While limited liability companies
are not required to maintain the same formalities as corporations and
the law on the subject is less clear, the veil of protection afforded
by the creation of LLCs can still be pierced by a court if the two
elements described above are satisfied.
In summation, alter ego is a well
accepted principle in California.
In developing the alter ego doctrine, California
courts have balanced two competing considerations. On the one hand,
they recognize that the law permits the incorporation of businesses
for the purpose of isolating liabilities among separate entities.
Since society recognizes the benefits of allowing persons and
organizations to limit their business risks through incorporation,
sound public policy dictates that disregard of those separate
corporate entities be approached with caution. On the other hand,
they have also emphasized that it would be unjust to permit those who
control companies to assert their separateness in order to commit
frauds and other misdeeds with impunity.
Closely related to the alter ego
doctrine is the doctrine of joint enterprise liability or enterprise
liability. While piercing the corporate veil provides a mechanism for
holding a shareholder (person or entity) liable for the debts of the
corporation, joint enterprise liability provides a mechanism for
holding a non-shareholder liable for the debts of a corporation.
A joint enterprise is defined as an
enterprise created by two or more persons or entities, by express or
implied agreement, that have a common purpose and equal rights of
In order for a court to determine
that joint enterprise liability exists, two elements must be
First, there must be such a unity
of interest between the two (or more) entities that their separate
existence has de facto ceased, and secondly, that treating the two
entities as separate would promote an injustice.
The attorneys with Michael T.
Chulak & Associates understand alter ego, piercing the corporate veil
and joint enterprise liability. We represent plaintiffs and
defendants in litigation throughout California.
Call Michael T. Chulak & Associates
for a no cost initial consultation