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The alter ego doctrine is used in labor law to determine whether an employer is secondary or neutral in a labor dispute. It is a legal doctrine which courts use to disregard the limited personal liability that attches to acts taken in a corporate capacity when there is in reality no separate identity of the individual and corporation.
If an owner carries on his/her business entity in complete separation to his personal assets, then the business entity will continue to be recognized as a separate entity. Then the business entity itself and not the owner will be responsible for the company’s debts. In such case the owner may lose only what has been invested into the business entity. The owner will have only limited liability for the business's debts.
But if such separateness is not kept while operating the business, but instead just carried on as another side of the owner i.e., his/her alter ego there is no basis for limited liability Then, the owner will have unlimited, personal liability for all of the business's debts.
Some of the factors courts consider in determining whether the alter ego doctrine applies include:
1.Failure to hold meetings.
2.Commingling corporate with personal funds.
3.Using corporate accounts for personal loans or other personal purposes.
4.Negotiating loans or leases between the corporation and a principle other than at an arm's length basis.
5.Using corporate assets continually for personal use.
6.Failing to carry reasonable insurance on the corporation having due regard to the risks inherent in the corporation's business.
7.Failing to set up a review mechanism as to decisions so that all aspects of a proposed course of action will be considered.
8.Using the corporation or manipulating its assets for illegal transactions.
Relevant legal forms include:
Jury Instruction - 220.127.116.11 Corporation As Alter Ego Of Stockholder
Jury Instruction - 18.104.22.168 Subsidiary As Alter Ego Of Parent Corporation