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Insulation from Liability through Subsidiary Corporations (with William O. Douglas), 39 Yale Law Journal 193 (1929)


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.

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