Brigham Young University Law Review
BYU L. Rev.
Sovereign nations own more than ten percent of the world's largest firms and use these ownership stakes to pursue economic, social, and political objectives unrelated to profit maximization. Sovereign nations also have unique powers and attributes that ordinary owners lack. Sovereigns do not need an owner's control rights to direct entity behavior; they have the power to regulate. Sovereigns do not need an owner's economic rights to extract value; they have the power to tax. And sovereigns do not need to hide behind the principle of limited liability, which protects owners of limited liability entities; they have sovereign immunity in both domestic and foreign courts.
Despite these fundamental differences, neither courts nor legal scholars have seriously examined whether organizational law should distinguish sovereigns from other owners. This Article takes up that question, focusing on the law of veil piercing as applied to corporations and other limited liability entities owned by sovereign states. Its first contribution is to demonstrate that the principle of limited liability does different work for sovereign states than for ordinary shareholders. That principle's primary function is to create a partition between the owner's assets and those belonging to the entity. Because the partition yields important economic benefits, veil piercing is reserved for exceptional cases. But foreign states do not need organizational law to realize these benefits. The law of foreign sovereign immunity already protects the state's assets in ways that mimic the protections of organizational law. By contrast, state owned entities rely on organizational law for asset protection. Put differently, in the sovereign context, organizational law mostly protects entities.
In the United States, the law of veil piercing in this context derives from the Supreme Court's seminal Bancec case. The Article's second contribution is to demonstrate that Bancec supports its clarified understanding of the relevance of organizational law. Indeed, Bancec was a reverse veil piercing case in which a creditor of a foreign state asserted a claim against a state owned firm. Bancec's emphasis on the traditional asset protective function of organizational law must be understood in that context. Bancec does not stand for the proposition that foreign states should receive the same protections as ordinary shareholders. The Article closes by exploring implications of this analysis. Perhaps the most important (if counter intuitive) implication is that courts should be more receptive to traditional veil piercing claims, at least in a subset of cases.