Nevada Corporate Veil Piercing

Business

In Nevada, “piercing the corporate veil” is now the subject of a statute, NRS 78.747. According to article 2 of this statute, to establish an “alter ego”, three things must be proven:

has. The corporation is influenced and governed by the shareholder, director or officer;

b. There is such a unity of interest and ownership that the corporation and the shareholder, director, or officer are inseparable from each other; Y

against Adherence to the corporate fiction of a separate entity would penalize fraud or promote manifest injustice.

This statute is a codification of the test enunciated in the previous jurisprudence. See, for example, ecklund v. Nevada Wholesale Timber Co., 93 nev. 196, 562 P.2d 479 (1977), also holding that all three elements must be proven to lift the corporate veil. In any case, as the Court pointed out in Baerv. amos j walker, Inc., 85 Nev. 219, 220, 452 P.2d 916, 916 (1969), “The corporate layer is not lightly cast aside.”

Turning to other pertinent considerations, at North Arlington Medical Building, Inc. v. Sanchez Construction Co.., 86 nev. 515, 471 P.2d 240 (1970), where this Court listed, in footnote 3 of its opinion, some 22 factors tending to establish the second element of NRS 78.747(2). In polar StarHowever, this Court noted that “[t]these factors may indicate the existence of an alter ego relationship, but are not conclusive.” Id., at 747 P.2d 887. Thus, as other tribunals have done, this Court noted that each veiling case is sui generis “There is no litmus test to determine when corporate fiction should be ruled out; the outcome depends on the circumstances of each case.” id

In re Blatstein, 192 F.3d 88, 101 (3rd Cir. 1999). Furthermore, with respect to shareholder loans to a corporation, the Colorado Court of Appeals has held, in hill v. Dear609 P.2d 127, 128 (Col. App. 1980):

“It would defeat the purposes of corporate law to expose directors, officers, and shareholders to personal liability for the obligations of a corporation when they, in their individual capacities, contribute funds to, or on behalf of, a corporation for the purpose of helping the corporation to meet its financial obligations, and not for the purpose of perpetrating fraud or furthering its personal affairs.

Thus, intercompany loans and shareholder loans do not, by themselves, establish either the mix of assets or the existence of an alter ego.

As the law has developed in the decisions of this Court, the “injustice” that could result from the recognition of corporate fiction must be more than merely fortuitous. It must be accompanied by some kind of evil on the part of the supposed alter ego. In polar StarFor example, when shareholders learned that a creditor had a legitimate claim against the corporation, they withdrew or diverted corporate funds for their personal use. But “undercapitalization” or “siphoning” alone will not satisfy the third element of the alter ego test. As the Court pointed out in north arlington:

In either case, it is incumbent on whoever seeks to lift the corporate veil, to prove by a preponderance of the evidence, that the financial setup of the corporation is just a sham and caused an injustice.

Id., at 471 P.2d 244. See also, Rowland v. Worst, 99 Nov 308, 662 P.2d 1332 (1983), where the corporation was clearly undercapitalized, had negative net worth at the time of trial, corporate formalities had been ignored, dividends were not paid to shareholders and directors, and officials do not receive salaries. . On the other hand, the corporation had a separate bank account and a contractor’s license in its own name. Given these facts, the Court held, at 662 P.2d 1338:

“Although the evidence shows that the corporation was undercapitalized and that there was little separate existence from … the evidence was insufficient to support the conclusion that the appellants were the alter ego of the … corporation.”

the possession in rowland This is somewhat surprising, given that many of the North Arlington factors have been established. But the Court gave no indication in its opinion that there was evidence of inequity, injustice or fraud. However, the Court noted that the issues giving rise to the litigation were “a legitimate commercial dispute.” ID., at 662 P.2d 1336. In such a case, therefore, there is no abuse of the corporate form that warrants piercing the corporate veil. To be sure, this Court has been very conservative in its application of piercing veil principles. And, after all, using the corporate form to protect shareholders from liability is precisely what the corporate form is supposed to do.

Finally, NRS 78.747(2)(c) expressly requires that it be shown that manifest injustice would result from recognizing the corporation as a separate entity.

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