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"How to protect against subsidiary liability" by Venable partner, Carmen Fonda, and associate, Daniel Mendelsohn, was published in Corporate Secretary on March 19, 2018. Here is an excerpt:

If a subsidiary is potentially subject to claims in a state such as California that imposes an alter ego or instrumentality theory of veil piercing, it should have a legal right to use the assets utilized in its business, enter into agreements in its own name, and observe all (or at least most) organizational formalities.

In addition, parent entities may want to consider taking steps such as:

  • Entering into shared services agreements regarding enterprise-wide tasks such as human resources, accounting or IT.
  • Accounting for enterprise-wide cash management with appropriate credits and debits between parent and subsidiary.
  • Ensuring that the subsidiary is adequately capitalized against foreseeable liabilities, including being a named insured on the enterprise’s general liability policies.