Published in Law360 on August 30, 2022. © Copyright 2022, Portfolio Media, Inc., publisher of Law360. Reprinted here with permission.
A recently filed cannabis case in Oregon, Drops LLC v. La Mota LLC, demonstrates pleading of two forms of the alter ego theory of liability.
Most lawyers and business owners know that one of the principal reasons to form a business entity is to limit the owners’ and shareholders’ exposure to liability. This is because a fundamental principle of corporate law is that a business has a separate and distinct legal existence from its owners. So in nearly all circumstances, the entity alone is liable for its debts.
One exception is the alter ego theory of liability. Commonly known as veil piercing, the alter ego theory of liability attempts to reach beyond the putatively liable business entity and into the pockets of the business owners or into affiliated business entities.
When available, the alter ego theory of liability can be a powerful tool for plaintiffs.
Attempts to pierce the veil and hold principals or affiliated companies liable under an alter ego theory may be accomplished in a few different ways:
Vertical veil piercing refers to piercing the veil between
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