Piercing the LLC Veil — Is Tax Classification a Relevant Characteristic?
4 Pages Posted: 14 Apr 2015
Date Written: April 13, 2015
Abstract
While the equitable remedy of veil piercing “seems to happen freakishly, like lightning, it is rare, severe and unprincipled”; it seems that courts are finding that its limitations and principles as developed in the context of the corporation are applicable in the context of LLCs. For example, in Kubican v. The Tavern, LLC, the West Virginia Supreme Court wrote: “Accordingly, we hold that W. Va. Code §31B-3-303 permits the equitable remedy of piercing the veil to be asserted against a West Virginia Limited Liability Company.” This also appears to be the case in Delaware.
As observed in Bowen v. 707 On Main, “The principle of piercing the corporate veil … also is applicable to limited liability companies and their members.” Still, courts are struggling with certain aspects of the application of piercing doctrine to LLCs, especially the question of “compliance with [corporate] formalities.” Another feature that is making an appearance in favor of piercing is the consideration of the tax status of the LLC.
As is discussed in the article, tax treatment has no place in the piercing analysis, and tax classification should not be a factor in whether or not to set aside the rule of limited liability.
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