Piercing Corporate Veil in Texas, US

Question

Context

For this question, I'm only asking about the United States and if relevant, LLCs in the state of Texas. While reading about asset protection strategies and trying to understand corporate veil piercing; I came across two different articles.

Relevant Articles

Piercing the Corporate Veil discusses "Alter Ego" which requires fraudulent intent and "Single Business Enterprise Theory" (which would pierce a lot of asset protection strategies I've read about).

Texas Supremes Overturn Single Business Enterprise Theory appears to say that Texas no longer considers the Single Business Enterprise Theory valid for piercing the corporate veil; leaving only Alter Ego w/ Fraud involved to pierce the veil.

Example

Say there is a holding company Acme LLC that wholly owns two operational subsidiaries that provide different products and services. Acme LLC is a small business, so there is overlap in officers (members of Acme LLC). Few if any employees/contractors are involved and have contracts with the subsidiaries.

Questions

As long as there is no fraud, is it safe to assume such a business structure's corporate veil would be secure; or are there other methods of veil piercing that need to be considered?

Are there any non-obvious actions that aren't "fraud" (no intent to deceive or defraud) but still would be considered such for corporate veil piercing purposes?

Answer 1

The facts you describe don't sound sufficient for traditional veil piercing, where the most important factor is usually the co-mingling of funds, or the paying off of one's expenses with the other's funds without treating this as a loan and documenting it accordingly.

Separate and apart from conventional "veil piercing" there are actions to invalidate "fraudulent transfers" some of which don't constitute intentional fraud. A transfer without substantially equivalent value that renders a company insolvent is a fraudulent transfer and the funds can be recovered from the transferee if sued within the statute of limitations, even if neither party had ill intent.

For example, if the subsidiaries paid dividends to the parent and those dividends caused the subsidiaries to have fewer assets than liabilities, that would be a fraudulent transfer, even if the fact that the subsidiary was rendered insolvent wasn't realized by the people authorizing the dividend when they authorized the dividend.

An extended discussion of the Texas Uniform Fraudulent Transfer Act (TUFTA) can be found here. The intersection of TUFTA and veil piercing concepts in Texas is discussed at greater length here.

Another emerging concept is that many federal statutes and probably some state statutes and common law rules in Texas, impose liability on managers for participating in conduct or failing to take certain actions (e.g. not paying withholding taxes, not paying minimum wage, doing defective do it yourself repairs, engaging in professional malpractice, making fraudulent statements), even when liability is not imposed on mere passive owners. In closely held businesses, this is often sufficient because the owners are usually also active employees.

There are also some laws related to income taxes and employee benefits that treat groups of related companies as a single unit, effectively piercing the corporation, by statutes applicable specifically to those narrow issues, rather than in general.