The Parent Company’s Liability for its Foreign Subsidiary

Abstract

The limited liability has been the foundation of the corporate legal framework since the establishment of the corporate legal concept, and the parent company and its subsidiary are separate entities, so the parent company should not be liable for any debt or liability that the subsidiary incurred. However in reality, there were some cases that the parent companies abused their capacity and manipulated the subsidiaries as their tubes or tools to siphon the profits and avoid any liabilities. To prevent the abusive practices done by parent companies, the courts and/or legislatures in different jurisdictions have developed multiple doctrines to address these issues, such as “Pierce corporate veil”, “Alter ego”, etc. to identify the parent companies as the real perpetrators in certain circumstances. In recent European cases, there are some new trend to define the parent company’s liability for its foreign subsidiary. In the paper, it will explore the traditions for the limited liability of the company, the doctrines to identify parent company’s liability, explain the new trend being indicated from the European courts and make some suggestions for the transnational companies who have operations in multiple jurisdictions.

Copyright & permissions