Insulation from Liability Through Subsidiary Corporations

Abstract

While the desire for limited liability has played its part in\nincreasing the use of the corporate device among the smaller industrial\nunits, it alone is not responsible for such extensive use\nof the corporation arpong the larger industrial units. A primary\nfactor there has been absentee ownership, attendant on the wide\ndistribution of securities. The corporate device has lent itself\npeculiarly well to the public marketing of securities and to the\nevolution of a management structure in which the so-called\nowners play insignificant roles. The factor of limited liability\nhas not been unimportant. It merely has not been paramount.,\nThe same can be said for the evolution that has taken place\nwithin the business units using the corporate form. Recent\nyears especially have seen an increasing use of the subsidiaryparent\nstructure. The farthest point along this line of evolution\nhas been reached in the public utility field. But other businesses\nhave adopted it and used it extensively. The reasons for the\nuse of this structure are manifold. The increased facility in\nfinancing; the desire to escape the difficulty, if not the impossibility,\nof qualifying the parent company as a foreign corporation\nin a particular state; the avoidance of complicatinn.- involved\nin the purchase of physical assets: the raention of the\ngood will of an established business unit; the avoidance of taxation;\nthe avoidance of cumbersome management structures; the\ndeb.. for limited liability, are among the primary motives.\nThe desire for limited liability has been merely one among many\nfactors. And at times it has appeared to recede.