Chapter III, C. Alter Ego

• Jurisdiction: United States

C. Alter Ego

Another theory that courts have looked to in support of their substantive consolidation determinations is the alter-ego theory. However, it can sometimes be difficult to differentiate it from piercing the corporate veil. Indeed, courts have applied tests similar to the veil-piercing tests discussed above in determining whether to apply the alter-ego theory. For example, in California, the court requires a showing of "sufficient unity of interest and ownership" and a finding that the "facts are such that adherence to the fiction of the separate existence of the corporation would sanction a fraud or promote injustice."¹¹⁹ This test has been characterized to "encompass a host of factors," including consideration of the following:

• whether the controlling entity has commingled funds and other assets, failed to segregate funds, and diverted the controlled entity's funds or assets for purposes other than for the entity;
• whether the controlling entity has treated the assets of the controlled entity as its own;
• whether the controlling entity has failed to obtain authority to issue stock or to subscribe to or issue the same;
• whether the controlling entity has held itself out as liable for the debts of the controlled entity;
• whether the controlling entity has failed to maintain minutes or adequate corporate records, and confused the records of the separate entities;
• whether the controlling entity has maintained identical equitable ownership in the entities;
• the identity of the equitable owners with the domination and control of the entities;
• the identity of the directors and officers of the entities in the responsible supervision and management;
• whether all of the stock in an entity is held by one individual or the members of a family;
• whether the entities utilize the same office or business location;
• whether the entities employ the same employees and/or attorney;
• whether the controlling entity has failed to adequately capitalize a corporation;
• whether any of the entities have a total absence of corporate assets, or are undercapitalized;
• whether the controlling entity has used an entity as a mere shell, instrumentality or conduit for a single venture or the business of an individual or another corporation;
• whether the controlling entity has concealed and misrepresented the identity of the responsible ownership, management and financial interest, or concealed personal business activities;
• whether the controlling entity has

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