...and the shell company that has no assets doesn't even show up in court. That's the problem I wanted to know how to fix.
Courts can't solve everything and they certainly can't prevent a great many things. Especially when there's such a simple way to avoid responsibility (shell corporations).
The fact that these shell companies don't actually do anything besides sue people is also a problem. It's difficult to find grounds to sue a business that doesn't have any business activities. (Except countersuits as in Newegg's case, so good on them.)
Good point. Although this particular case highlights one of the key problems in the entire system. Shell corporations with very little assets are established as the suing entity in order to shield the much larger and wealthier owners from any counter-suit liability. If that aspect of the current system were changed and you could pierce the shell corp to get at the real beneficiaries, it would alter the landscape for these cases significantly.
If you have a single product that kills people, you aren't legally allowed to put all your liabilities and none of your assets into another (non-shell, by your definition) company to get out of your liabilities. [0] What's happening here is quite similar.
[0] See, for example, the J&J case, which was an even more generous form of the same.
the rise of the limited-liability shell company made it pointless as there's no point in counter-suing a company with no assets which will fold if any counterattack succeeds.
Wouldn't that get rid of the troll? Also, would it be possible to seek legal expenses from the shell corporation's creditors?
Using a shell company wouldn't have helped him. What he committed was an act of fraud -- bidding on licenses which he knew he couldn't pay for -- and fraud can pierce the corporate veil. There is extensive legal precedent that a corporation created for the purpose of carrying out a fraud does not provide any protection to the individual(s) behind it.
(This is not legal advice. I am not a lawyer. Talk to a lawyer if you plan on committing acts of fraud.)
What if there was a law that any "company" whose incorporation cannot be demonstrated to actually satisfy certain legal guidelines could automatically lose any legal suit that it was involved in? How many of these shells would disappear?
this is different, the actual underlying asset is at stake for liabilities it causes. This is the whole point of corporations.
The analogy would be if a landlord created a shell company, and then only gave that company it's legal liabilities without any assets. That's what J&J did here and why this case is so obviously egregious.
If you could that, it would be a get out of jail free card for all legal liability in all cases. It's essentially renouncing rule of law
In a case like this what's left other than an empty sack? Unless you're able to pierce the corporate veil there isn't anyone/anything with assets left to be made whole by (e.g. sue).
Also, naive question, what happens if you don't do these things? If the company has no assets, it's not like you can get sued? I'm not arguing that this should be done, I'm just curious what the specific reason is that it happens.
Small companies lose out also, because in general only large-ish companies can afford the overhead of maintaining shell companies. (Not just for this particular loophole, but for lots of loopholes involving shell companies.)
If enough of those tiny little shell companies get wrung out to bankruptcy, there won't be any left to act as fronts for this kind of unethical, and illegal, behavior. And, if they are acting on behalf of other companies, that would likely come out in the court proceedings...which could allow taking the suit up the chain to the actual parties who instigated it. One would hope, anyway, though IP law in the US behaves in deeply irrational ways sometimes.
The problem is likely suable entities. I'd imagine there's a fair number of corporate cut-outs in shady schemes like this. With the expectation that if there are ever lawsuits a sacrificial faux-company goes bankrupt and takes the damages.
My sister also uses "shell" companies. She is a prominent ex-scientologist and scientology has an established history of using litigation to punish and silence critics and exmembers. So when her car gets rammed, and she gets sued, by being broke she can't pay damages, and the car is owned by an LLC that only owns the car, so the plaintiff is limited in the amount of money they can extort.
She has more than a dozen LLCs just to protect what little she owns.
Courts can't solve everything and they certainly can't prevent a great many things. Especially when there's such a simple way to avoid responsibility (shell corporations).
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