Adverse Interest Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Adverse Interest, written in plain English, along with examples of how it is used.
What is Adverse Interest?
n. the latin ‘alter ego’ stands for ‘other I’. It is used to mean another self or a second personality within a person. Legally it is used to refer to some entity set up to act in the name of another person or corporation in legal matters. It is usually used as a cover to save the defendant from disgrace or to save some firms’ reputation. Proving the use of alter ego would be a case of piercing the corporate veil in order to obtain a judgment against the principals or the individuals behind the alter ego, instead of the corporation/firm itself.
History and Meaning of Alter Ego
The term "alter ego" is of Latin origin and means "second self". Legally it refers to an entity created to act on behalf of another individual or corporation in legal matters. This could be used to protect the principal from personal liability or to protect the reputation of a firm. It can also be used as a cover-up to save the defendant from disgrace. Proving the use of alter ego involves piercing the corporate veil in order to get a judgment against the individuals or principals behind the alter ego.
The concept of alter ego in law is closely related to the "piercing the corporate veil" doctrine. This means a plaintiff is allowed to bypass the limited liability protection that corporations generally provide and go after individual shareholders, directors, or officers. Piercing the corporate veil is only allowed under certain circumstances, and the criteria vary from state to state.
Examples of Alter Ego
- In a lawsuit against a corporation that was found to be a mere shell for the sole purpose of avoiding taxes, the court allowed the piercing of the corporate veil and the shareholders were held personally liable for the debt.
- A man who owned several companies set up a new entity in the name of his wife to escape personal liability. The court deemed it an alter ego and held him personally responsible for the judgment.
- In a case where a landowner set up a corporation to lease his property to another corporation at an extremely high rate to avoid foreclosure, a court held that the two corporations were alter egos, and both were held liable for the debt.
Legal Terms Similar to Alter Ego
- Piercing the Corporate Veil - a legal doctrine used to remove the protection of limited liability for a corporation and hold the individuals behind it liable.
- Veil Piercing - a term used interchangeably with piercing the corporate veil to describe the legal method for reaching the shareholders or owners of a corporation to hold them responsible for the corporation's debts.
- Corporate Shield - the doctrine that provides a corporation limited legal liability, allowing shareholders to not be held responsible for the corporation's liability.