Business Startup

When is a Parent Company Liable for the Acts of a Subsidiary?

Imagine you went out of your way to create a corporate structure that would minimize risk. You divided up your corporate assets into different subsidiary entities so that they could not all be reached by a single creditor. Now, one of your subsidiaries is being sued, your parent entity has also been named in the lawsuit, and you’re wondering to what extent the parent entity’s assets–including its ownership of all the other subsidiaries–are at risk.

The Basic Rule–Parent Corporation not Liable for Acts of Subsidiaries

The basic rule is that parent corporations will not be liable for acts of their subsidiaries. This default rule is the reason so many conglomerates are structured as a hierarchy of parent and subsidiary corporations. The Supreme...

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