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26 J. Corp. L. 479 (2000-2001)
Abolishing Veil Piercing

handle is hein.journals/jcorl26 and id is 489 raw text is: Abolishing Veil Piercing
Stephen M. Bainbridge*
I weigh my words when I say that in myjudgment the limited liability corporation is the
greatest single discovery of modern times .... Even steam and electricity are far less
important than the limited liability corporation, and they would be reduced to
comparative impotence without it.
-President Nicholas Murray of Columbia University (1911)1
I.  INTRODUCTION      ......................................................................................................... 480
II. THINKING ABOUT LIMITED LIABILITY ...................................................................... 482
A. The Classic Case: Walkovszky v. Carlton ......................................................... 482
B. Limited Liability and the Contractarian Model ................................................. 484
III. JUSTIFYING LIMITED LIABILITY ............................................................................... 487
A. Contract Creditors of Public Corporations ....................................................... 488
B. Tort Creditors of Public Corporations ............................................................... 494
C. Contract Creditors of Close Corporations ........................................................ 500
D. Tort Creditors of Close Corporations ................................................................ 503
IV. VEIL PIERCING: A DYSFUNCTIONAL DOCTRINE ....................................................... 506
A .  The  Standards    .................................................................................................... 506
B .  The  Laundry   List ................................................................................................ 509
C .  Sum m  ation  ......................................................................................................... 5 13
V. RETHINKING VEIL PIERCING ..................................................................................... 514
A. Contract Creditors and Other Bargain Settings ................................................ 517
1. Commercial Misrepresentation .................................................................... 517
2. Ex post Undercapitalization ......................................................................... 519
B .  Tort  Creditors   .................................................................................................... 523
C. Enterprise Liability and Parent-Subsidiary Corporations ................................. 526
1. Veil Piercing vs. Enterprise Liability in Corporate Groups ......................... 526
2. The Law of Enterprise Liability .................................................................... 527
3. Limited Liability in Corporate Groups ......................................................... 528
V I.  C ON CLUSION    ............................................................................................................ 534
' Professor, UCLA School of Law; Joseph Flom Visiting Professor of Law and Business, Harvard Law School
(2000-01). Subject to the usual disclaimers, I thank Mitu Gulati, Bill Klein, Jack Jacobs, Lynn LoPucki,
Stephen Presser, Bob Thompson, and Elliot Weiss. This article is based on a chapter of my forthcoming text,
CORPORATION LAW, to be published by Foundation Press in 2002.
1. Quoted in William P. Hackney & Tracey G. Benson, Shareholder Liability for Inadequate Capital, 43
U. PI-r. L. REV. 837, 841 (1982) (footnotes omitted).

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