The most common causes of this issue are: Hopefully, the logic of the "snapshot in time" (or at least near in time) will ultimately be borne out, but there will continue to be consternation if not some frustration in the interim.Your IP address has been temporarily blocked due to a large number of HTTP requests. If an entity has been grossly mismanaged in the past, then it will indeed have to be considered whether it will forever carry an inherent weakness from that time period, and thus the formation of a new entity will at least have to be on the table for analysis. I don't suggest an answer to that question, other than to state the obvious: Until the courts start to better define the temporal limitations on alter ego, there will be little certainty. Whether the courts would agree with this analysis, however, is not so clear.Īnd that then brings us to the much bigger practical problem of all this for business transactional and entity lawyers: Can an entity that has in the past been mismanaged every really be cleaned up? Or will an entity that has in the past been mismanaged always and for ever more carry some latent risk that will make it more susceptible to an alter ego challenge should one come along? This is not anything like a hypothetical problem, as daily practitioners are faced with situations where entities have been grossly mismanaged and thus have to make decisions as to whether they should clean them up, or whether they should just close that entity down and start a fresh one with no history of past problems, but which will likely cause some additional expense and perhaps have tax implications as well. Effectively, when the entity was finally cleaned up in 2010, that had the effect of curing whatever alter ego issues which existed at that time, and so whatever evidence is weighed by the court should at least be post-2010 if not much closer in time to 2015. My own answer would be in the negative, since the events of 2005-2010 are not near in time to the liability event of 2015 and had no part in causing the 2015 event. So here is the question: Should the court take into account the events of 2005 to 2010 in determining whether the alter ego doctrine should allow the liability to bypass the entity and be imputed to the true wrongdoer? Now, what happened between 20 didn't have anything at all to do with the liability which arose in 2015, but it would be proof of something the courts refer to as the "unity of ownership and control" between the entity and the true wrongdoer. Then, in 2015 an event giving rise to liability occurred and it was followed by allegations that the entity was simply the alter ego of its owner, and part of the proof was the mismanagement of the entity from 2005 to 2010. But nothing bad happened at the time because of all this, and by 2010 the entity was completely cleaned up. To illustrate this problem, consider that an LLC was created in 2005 and in the first five years of its existence it was managed terribly ⸺ proper records were not kept, personal and business moneys were commingled, and business assets used for personal purposes. The problem is that there is a second possible answer, which is that the court may look at all the facts and circumstances involving the entity without regard to the time of the events giving rise to the underlying liability. If alter ego liability flows from the underlying liability giving rise to the judgment, then the court should essentially take a "snapshot in time" which looks at all the relevant facts and circumstances near in time to when the underlying liability arose. Intuitively, the answer seems (to me at least) to be in the affirmative.