Thursday, July 03, 2014

The Corporate Veil has been pierced.

As "Man from Wasichustan" points out on

If Hobby Lobby's owners can give their Corporation religion, their religion gives Hobby Lobby's owners--and any other owner, shareholder, officer, whatever--liability for the actions of the corporation.  Mr. Papantonio, who happens to be one of America's preeminent trial lawyers, sees it as an opportunity to sue owners for the company's negligence.

Some other people, it turns out, agree with his assessment and expand on what it means....
 Quoting Alex Park at (emphasis added):
Basically, what you need to know is that if you and some friends start a company that makes a lot of money, you'll be rich, but if it incurs a lot of debt and fails, you won't be left to pay its bills. The Supreme Court affirmed this arrangement in a 2001 case, Cedric Kushner Promotions vs. Don King:
linguistically speaking, the employee and the corporation are different “persons,” even where the employee is the corporation’s sole owner. After all, incorporation’s basic purpose is to create a distinct legal entity, with legal rights, obligations, powers, and privileges different from those of the natural individuals who created it, who own it, or whom it employs.
That separation is what legal and business scholars call the "corporate veil," and it's fundamental to the entire operation. Now, thanks to the Hobby Lobby case, it's in question. By letting Hobby Lobby's owners assert their personal religious rights over an entire corporation, the Supreme Court has poked a major hole in the veil. In other words, if a company is not truly separate from its owners, the owners could be made responsible for its debts and other burdens.
Incidentally, this also holds for that falsehood taught in the MBA finance classes at the U. Maryland and other fine business schools - that dividends are "double-taxed".   They aren't - the corporation is a distinct legal entity from the owners. 

"If religious shareholders can do it, why can’t creditors and government regulators pierce the corporate veil in the other direction?" Burt Neuborne, a law professor at New York University, asked in an email.

That's a question raised by 44 other law professors, who filed a friends-of-the-court brief that implored the Court to reject Hobby Lobby's argument and hold the veil in place. Here's what they argued:
Allowing a corporation, through either shareholder vote or board resolution, to take on and assert the religious beliefs of its shareholders in order to avoid having to comply with a generally-applicable law with a secular purpose is fundamentally at odds with the entire concept of incorporation. Creating such an unprecedented and idiosyncratic tear in the corporate veil would also carry with it unintended consequences, many of which are not easily foreseen.