The court recognized that in order to successfully assert the alter ego doctrine it is not sufficient a lack of separateness between the corporation and the shareholder because “the corporate veil may not be pierced absent a showing of improper conduct”. In this case, the Supreme court created a two-prong test to decide whether the alter ego theory applies. In Florida, the landmark case on the alter ego theory is the Supreme Court case Dania Jai-Alai Palace, Inc. Although developed in connection with corporations, the alter-ego theory also applies to limited liability companies which share with the corporation the characteristics of being entities separate from their members and shielding members and managers from personal liability for companies’ debts. The alter-ego doctrine is also commonly known as the “mere instrumentality” doctrine because the corporation operates as an instrument for the personal advantage of its parent corporation, stockholders, or directors. Typically, alter-ego is applied in two scenarios: (1) when a parent corporation controls and directs a subsidiary corporation, and (2) when a corporation is used by shareholders for personal business in order to escape their personal liability for their actions. īeing an exception to a general principle, the alter-ego doctrine is applied in limited circumstances. Alter-ego doctrine pierces the corporate veil when there is evidence of a unity between the corporation and the individuals so that holding only the corporation liable would be unfair.

The alter ego theory was developed to alleviate the harshness arising from the mere application of the corporate veil doctrine on creditors or tort claimants suing corporations. “Alter-ego” is equitable doctrine developed by courts to disregard the corporate status of a corporation and hold shareholders personally liable for the corporation’s actions.

Intuitively, the corporate veil, which limits owners’ personal liability, is one of the principal reasons incentivizing individuals to form a corporation. This implicates not only that corporations have legal rights and liabilities distinct from their shareholders or directors, but also that the shareholders and directors are not liable for corporate obligations. As a general principle, corporations are deemed as legal entities separate from their shareholders, officers, and directors.

Alter ego game personality test