The End of the Single Business Enterprise Doctrine in Louisiana

Effective August 1, 2024, a new Louisiana statute ended the "single business enterprise" doctrine in Louisiana, which previously allowed courts to hold one business organization responsible for the liabilities of another closely related business organization based on a long list of factors, many of which are commonly found among affiliated business entities.

What does the new law establish?

Under the new law, separate legal identities of two or more business organizations may not be disregarded merely because one or more of the following factors exist:

• They control one another or both are controlled by the same person or business organization;
• They have common directors, officers, shareholders, members, managers, partners or employees;
• They have common offices;
• They are subject to unified administrative control;
• They utilize a centralized accounting system;
• One business organization finances, incorporates or organizes another;
• One business organization makes properly documented payments on behalf of another or makes properly documented use of the property of another;
• The employees of one business organization provide properly documented services for another;
• One business organization receives business only from another.

Also under the new law, the separate legal identity of a business organization shall not be disregarded as between one business organization and another except on grounds that would justify disregarding the separate legal identity of a business organization as between the business organization and a natural person.

What grounds justify disregarding the separate legal identity of a business organization?

Disregarding the separate legal identity of a corporation as between the corporation and a natural person is commonly referred to as "piercing the corporate veil." Louisiana courts allow the piercing of the corporate veil only under two exceptional circumstances:

• If shareholders acting through the corporation commit fraud or deceit on a third party.
• If shareholders have failed to conduct the business properly on a corporate footing, disregarding the corporate entity to such an extent that the shareholders and the corporation become indistinguishable.

What factors determine whether the shareholders and the corporation are indistinguishable?

Louisiana courts usually determine whether the shareholders and the corporation are indistinguishable by considering relevant facts, including, but not limited to, whether there was:

• Commingling of corporate and shareholder funds;
• Failure to provide separate bank accounts and bookkeeping records;
• Failure to follow statutory formalities for incorporating and transacting corporate affairs;
• Failure to hold regular shareholder and director meetings;

Similar principles apply to an LLC. These principles now also govern disregarding the separate legal identities of two business organizations.

This alert is only intended to make the reader aware of some of the provisions of the new law (La. R.S. 12:1705) and some related considerations. This alert is not intended to constitute legal advice regarding any particular situation.