Insulation from Liability through Subsidiary Corporations

Abstract

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