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22 J. Corp. L. 131 (1996-1997)
Piercing the Veil of the Limited Liability Company, from Sure Bet to Long Shot: Gallinger v. North Star Hospital Mutual Assurance, Ltd.

handle is hein.journals/jcorl22 and id is 141 raw text is: Piercing the Veil of the Limited Liability Company, from Sure Bet to Long Shot: Gallinger v. North Star Hospital Mutual Assurance, Ltd. Shaun M. Klein I. INTRODUCTION . ........................................... 131 II. BACKGROUND ............................................. 135 A. The Doctrine of Piercing the Corporate Veil .................... 135 B. Application of Corporate Rules to LLCs ....................... 137 C. Minnesota Law .......................................... 139 III. OPINION OF THE GALLINGER COURT .............................. 141 A. Facts ................................................. 141 B. The Eighth Circuit Decision ............................... 142 IV. ANALYSIS OF THE COURT'S DECISION ........................... 143 A. The First Prong ......................................... 143 B. The Second Prong ....................................... 145 1. Special Knowledge of Material Facts ...................... 146 2. Fulfilling Bona Fide Purposes ........................... 147 C. A Liability-Free Form? ................................... 148 D. The Need for Legislative Guidance .......................... 150 V. CONCLUSION .............................................. 151 I. INTRODUCTION The limited liability company (LLC) is a relatively new entity from which to choose when starting up or reorganizing a business. Having evolved in the last twenty years,' the LLC is a hybrid business entity. All owners, called members, enjoy limited 1. Only two states had adopted LLC statutes prior to 1990, although similar entities were common internationally (e.g., the Brazilian limitadas, the German Gesellschaft mit beschraeukter Haftung, and the Portuguese sociedate por quotas responsibilidade limitada). Wyoming enacted the first Limited Liability Company Act in 1977 (WYO. STAT. § 17-15-101 (1989)), followed by Florida in 1982 (FLA. STAT. ANN. § 608.401 (West 1993)). Only these two states had passed LLC legislation before the Internal Revenue Ser- vice (IRS) ruled that limited liability would not preclude the entities from taxation as partnerships. See Rev. Rul. 88-76, 1988-2 C.B. 360. Following the IRS ruling, many states enacted LLC legislation. Between 1990 and 1992, 17 states passed LLC statutes. After this flood of state LLC legislation, the IRS again considered whether several states' LLCs should be taxed as corporations or partnerships. It concluded that LLCs would be treated as partnerships for tax purposes unless the relevant state LLC statute contained provisions allowing the LLC to

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