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Instrumentality Rule

corporate corporation liability subsidiary

A principle of corporate law that permits a court to disregard the corporate existence of a subsidiary corporation when it is operated solely for the benefit of the parent corporation, which controls and directs the activities of the subsidiary while asserting the shield of limited liability.

The instrumentality rule, also called the alter ego doctrine, destroys the corporate IMMUNITY from liability when the corporate nature of an organization is a sham that brings about injustice. When the rule is applied, the court is considered to pierce the corporate veil.

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