Alter Ego Doctrine

A legal theory under which a court disregards the formal separation between a corporate entity and its owners or affiliates — treating them as a single legal person — when the corporate form has been used to perpetrate fraud, evade obligations, or achieve an inequitable result. Alter ego claims are most frequently asserted to reach the assets of a parent corporation, controlling shareholder, or affiliated entity when the primary defendant lacks sufficient assets to satisfy a judgment. In litigation finance underwriting, the viability of an alter ego theory can dramatically expand the effective asset base available for collection and is an important factor when the named defendant has limited independent resources. Courts in different jurisdictions apply alter ego standards with varying degrees of strictness, making jurisdictional choice a strategic consideration.

Funders treat a viable alter ego theory as materially expanding the effective defendant pool when the named defendant is thinly capitalized, but they discount it heavily in the underwriting model because courts apply the doctrine narrowly and inconsistently across jurisdictions. A funder will rarely size an investment around alter ego exposure alone — it is treated as an upside scenario that improves collectability odds, not as a primary basis for the deal.