For Austrian companies expanding into the U.S. or who are already here, choosing the correct legal structure for the U.S. daughter company is essential to shield the Austrian owner from various types of liabilities of the U.S. company. One such type of liability is Piercing-the Veil (Durchgriffshaftung) -- a legal action that allows U.S. courts to hold an Austrian parent company or its owners personally liable for the U.S. subsidiary’s obligations. An effective approach to guard against this type of liability is to establish in a particular manner a U.S. subsidiary as a limited liability company (“LLC”) instead of a corporation. When formed and maintained in this way, an LLC can significantly reduce the risk of “piercing the corporate veil”.
In the U.S., veil-piercing claims typically arise when a subsidiary set up as a corporation or an improperly established LLC is operated as an extension of the parent company rather than as an independent entity. This can happen when the decision makers of the Austrian parent essentially run the U.S. entity through appointments to the Board of the U.S. entity and/or the key officer positions of the U.S. entity. Or it can occur more subtly where the principals of the Austrian parent behind the scenes still make the decisions for the U.S. entity.
Where however a U.S. LLC is established in a certain manner, the Austrian owners of the U.S. entity can avoid personal liability for the liabilities of the U.S. daughter company even if the Austrian owner exercises immense control over the U.S. entity. That is not the case where the Austrian owner exercises such control over a U.S. corporation. Considering this approach is crucial for Austrian companies entering a market known for higher litigation exposure. Not all LLCs are created equal but a with a properly organized LLC, Austrian businesses can strengthen the liability shield that an LLC offers by making veil-piercing claims far less likely.
Reinhold F. Krammer, Esq. | Honorary Austrian Consul and Attorney at Law – European Client Servicing Group, MASUDA, FUNAI, EIFERT & MITCHELL, LTD. | +1 312.245.7500 | RKrammer@masudafunai.com | www.masudafunai.com
