Jan 12, 2013

The religious practices of corporate alter egos

Are businesses, legally speaking, just the alter-egos of their owners?

The absolute clearest, most on-point exploration of the issues actually at stake in the religious liberty court cases involving for-profit business and the new health care rules is this piece by Howard M. Friedman, a former law professor and the blogger at Religion Clause. He raises this question, looking at one way the argument is being made for the religious freedoms of corporations.

Friedman notes that, in addition to questions about corporate personhood and the constitutional guarantees about exercise of religion, there are some curious quandaries about corporate law being brought up by these cases, specifically in the ways owners appear to be undermining the sorts of legal distinctions intended to protect corporate owners.

Friedman writes:
In the Affordable Care Act cases, some courts have avoided the difficult issue of whether a business has religious conscience rights by instead concluding that the business is so closely identified with its owners that it may assert the owners’ religious objections as its own.

This idea—that a corporation and its owners should be treated as the same person—is a well-known concept in corporate law, commonly referred to it as “piercing the corporate veil.” Most of the time, lawyers warn their corporate clients to do everything possible to avoid this “piercing,” since the doctrine is usually invoked when creditors of a business are making claims against the personal assets of a company’s shareholders, seeking to recoup their losses from an insolvent business by going after its owners. There is a vast amount of case law on when a court should allow “piercing the corporate veil” to reach shareholders’ personal assets, often focusing on abuse of the corporate form, misleading of creditors, or lack of corporate formalities. Business lawyers look to whether the corporation is the mere alter ego of its owners and routinely advise their corporate clients to emphasize the corporation’s separate existence from its owners.

However, the pleadings filed in many of the contraceptive mandate challenges purposely blur this line, collapsing the beliefs of the business with its owners, inviting “piercing.”
The distinction between an owner or a shareholder and the corporation itself, as Friedman notes, is an important legal underpinning of modern capitalism. What happens to these companies if they succeed in obliterating that distinction remains to be seen, but it could be serious.

The entire piece is well worth reading:  My Business, Myself: Piercing the Corporate Veil