Legal Question in Business Law in California

Re: Business Contracts & Corporations

That depends on how the two companies are organized and how they operate. If they are both corporations and if the parent does not exert too much control over the affairs of the subsidiary or mingle its finances with those of the subsidiary, then the parent should not be responsible. Basically, if the parent doesn't treat the subsidiary as a distinct entity then the courts won't, either.

Re: Business Contracts & Corporations

It depends on their relationship. I need more info before I can advise. Feel free to call me.

Re: Business Contracts & Corporations

As a general rule, no. The parent is only a stockholder. However, the courts have carved out significant exceptions under the general heading of 'alter ego' liability.

Factors which may be considered by a court in deciding whether to treat the subsidiary as the 'alter ego' of the parent include--

a) participation in a similar or functionally-related line of business, e.g. subsidiary builds houses on land owned by parent;

b) many or all directors, officers and employees are shared;

c) same business location;

d) failure to do business with each other at arm's length, e.g. parent lends money to subsidiary with little documentation, collateral or interest requirement;

e) corporations tend to benefit jointly from transactions entered into by the other;

f) inadequate capitalization of either; and

g) apparent fraudulent intent in formation or operation of the subsidiary.

There is no particular combination or number of these factors that must be present or absent to find one way or the other. However, the more of these factors which are present and the more strongly they affect the liability in question, the more likely a court will pierce the corporate veil and find the subsidiary liable.