Court Applies Corporate Alter Ego Law To Nevada LLC

Allen Matkins
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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.  NRS 86.371 seemingly immunizes members from liability:

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.  

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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