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Court Applies Corporate Alter Ego Law To Nevada LLC

Corporations and limited liability companies share a key feature - insulation of owners from the liabilities of the entity.  In the 19th century, courts began to fashion a significant exception to this principle for corporations.  The exception became known as the "alter ego doctrine".  The exception was not applied to LLCs because they did not then exist.  With the advent of LLCs, courts have had to confront the question of whether the alter ego doctrine applies to LLCs.

The Nevada Supreme Court has yet to address the issue.  However, U.S. District Court Judge Kent J. Dawson recently predicted that the Nevada Supreme Court "would treat an LLC as a corporation for the purposes of applying the 'alter ego' doctrine and piercing the corporate veil." Bustos v. Dennis, 2018 U.S. Dist. LEXIS 45764. 

But why predict?  The Nevada legislature has seemingly already answered the question.  NRS 86.371 provides:

Unless otherwise provided in the articles of organization or an agreement signed by the member or manager to be charged, no member or manager of any limited-liability company formed under the laws of this State is individually liable for the debts or liabilities of the company.

Judge Dawson's ruling notes NRS 86.371 but apparently views the alter ego doctrine as an unexpressed exception to the statute.  NRS 78.747 governing corporations similarly immunizes stockholders from corporate liabilities " unless the stockholder . . . acts as the alter ego of the corporation".  Judge Dawson does not explain why the express exception in NRS 78.747 should be read into NRS 86.371.  

Update:  Judge Dawson's prediction was correct but he was incorrect in asserting that "the issue [of the applicability of the alter ego doctrine to LLCs] has not been decided by the Nevada Supreme Court".  In fact, the Nevada Supreme Court held last November that "the alter ego doctrine applies to LLCs".  Gardner v. Eighth Judicial Dist. Court of State, 405 P.3d 651, 656 (Nev. 2017).  I discuss the Nevada Supreme Court's earlier holding in Gardner in Nevada Supreme Court Holds That Member-Managers Were Not Proper Parties To Negligence Claim Against An LLC.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...

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