Limited Liability Companies and Voluntary Creditors : Reexamining the Abolishment of Veil Piercing

The confusion surrounding LLC veil piercing stems from numerous factors, including some courts' seemingly blind application of corporate standards, and worse, some courts' misunderstanding that the corporation and the LLC are not the same entity. Indeed, the LLC is a different entity than the corporation in both structure and purpose. Most notably, the LLC is primarily a creature of contract, thereby making it a highly customizable business entity. Further, the contractual nature of the LLC is also ideal for voluntary creditors because, by default, many LLC statutes, such as the Delaware Limited Liability Company Act (“DLLCA”), provide voluntary creditors with numerous contractual avenues to ensure repayment. Moreover, there are other important doctrinal differences between the corporation and the LLC, such as those involving fiduciary duties. Nonetheless, courts ignore many of the LLC's special features in veil-piercing cases. This Article argues that courts and legislatures should prevent voluntary creditors from piercing the LLC veil. LLC statutes—including, most notably, the DLLCA—encourage freedom of contract, yet allowing voluntary creditors to pierce an LLC's veil allows them to bargain for protection ex post. Moreover, the differences between the corporation's and the LLC's doctrines, structures, and purposes further support repeal