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The Thin Corporate Veil

Updated: Oct 13, 2022

Claims of independence in legal business dealings amongst sibling organizations can be tricky. On the one hand, a company may need to claim independence in order to partner with other companies competing with their siblings. On the other hand, insurance and litigation may be interested in just how independent the business is.

How do we establish, legally, that an organization is truly independent, or merely being operated as a distinct business unit?

Through governance.

If the siblings are distinctly governed, then true independence can be claimed. However, if there are mixed areas of responsibility, such as a shared IT infrastructure or something particularly egregious, like a stacked board of directors manned entirely by one of the sibling organizations, then independence might be more difficult to assert.

With business interests in that gray area, it may be best knowing if it is a real or imaginary governance boundary. Risk abounds in the cracks of governance. Keep your ownership and distinct existence intact by operating a proper governance construct, starting with your board of directors, facilities, and infrastructure.

There is even a simple test for independence: Is the sibling subject to the same third-party vendor management and contracting provisions as any other vendor?

At Liticode, our advisory services incorporate identification of such risks. Whether we're providing a program review, acquisition assistance, a certification, or compliance audits, all our work incorporates identification of unacknowledged business risks. We dig into your business to try and find ways security and compliance can improve business by better aligning it with your needs.

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