Piercing the Corporate Veil under U.S. Law: How a German Parent Company Can Reduce the Risk
Thirteen recommendations for the U.S. subsidiary of a German company
Anyone operating a U.S. subsidiary as a corporation or LLC relies on the limitation of liability: shareholders are in principle not personally liable for the company’s obligations. U.S. courts may, however, in exceptional cases set this separation aside (“piercing the corporate veil”; Haftungsdurchgriff) and hold the parent company and, where applicable, its personal shareholders directly liable. According to the case law of the Delaware courts, this comes into consideration where the company and its controlling owner act as a single economic unit (alter ego, mere instrumentality) and, in addition, reliance on the legal separateness would involve an element of injustice or unfairness (cf. Wallace ex rel. Cencom Cable Income Partners II, Inc. v. Wood, 752 A.2d 1175, 1184 (Del. Ch. 1999); Mobil Oil Corp. v. Linear Films, Inc., 718 F. Supp. 260, 267 (D. Del. 1989)).
The risk increases where the U.S. company is run like a dependent department of the parent company. We set out the following recommendations in extract form; anyone who follows them reduces the risk of a piercing of the corporate veil.
Documentation and formalities
Corporate records: Keep the corporate records accurately and consistently.
Formal requirements: Comply with the formal requirements, such as timely filing of the annual report and at least one shareholders’ meeting a year, and document this.
Business documents: Keep the business documents of the different companies separate.
Disclosure: Disclose in business dealings who the members and participants of the company are.
Separation of the companies and of assets
Formal separation: Maintain the formal separation between the companies. Cooperation and the exchange of services should be documented in written contracts (for example cooperation agreements).
Separation of assets: Keep the assets of the companies and of their shareholders separate.
No private use: The company’s assets must not be misused for private purposes.
No empty shell: The company must not appear to be an empty shell that is merely the “alter ego” of a shareholder.
Finances and insurance
Capitalisation: Ensure adequate capitalisation so that the company can operate and continue to operate in its day-to-day business. Financing through intra-group loans must not result in the company having insufficient equity of its own.
Dividends: Pay dividends from time to time. The corporate-law limits on distributions must be observed in doing so; under Delaware law dividends may be paid only within the limits of § 170 DGCL, and directors who approve unlawful distributions may be liable under § 174 DGCL.
Reinvestment: Reinvest profits. Ensure that not all profits are drawn off by the majority shareholder.
Insurance: Ensure adequate insurance cover for the activity and the sector.
Organisation
Directors and officers: Ensure that the U.S. board members actually perform the tasks assigned to them.
Conclusion
What matters is always the overall picture: the more carefully the U.S. company is run and documented as an independent business, the lower the risk that a U.S. court will classify it as the alter ego of the parent company. The recommendations can reduce the risk but not rule it out; they do not replace an examination of the individual case and of the law of the state concerned. Please feel free to contact us if you have any questions.
Status: 23 October 2026
NIETZER Rechtsanwälte · Attorneys at Law (USA) · Heilbronn · www.unternehmensrecht.com
This article is for general information only and does not replace legal advice in an individual case.
