FYI landlords routinely put their apartments into single-purpose LLCs precisely to cordon-off the liability, while allowing profits to flow back.

I was actually just wondering what is stopping companies from forming separate LLCs for every product line or even product? I mean at some point the administrative overhead is not worth it but 100-1000 individual LLCs seems pretty trivial to manage for a fortune 500 company and that cuts your liability massively if you are able to effectively distribute assets.

It's pretty common in the financial world. The US government doesn't offer zero-coupon bonds, so the big banks create special purpose vehicles that buy US government bonds, split the cash flows into the strips and the zero-coupon bonds, and sell them separately. If some pork belly futures trader wipes out the bank, at least in theory, the special purpose vehicle outlives the rest of the bank and keeps paying out those cash flows, and the pork belly creditors don't get those zero-coupon bonds you bought.

At least, I think that's the way it's supposed to work. I used to work at Goldman, and at some point, someone told me that the number of legal entities was roughly the number of employees. I'm not sure how true that was, but I'd believe it.

There are some good reasons to allow these separate legal entities, to allow orderly partial collapses of businesses to reduce the risk of cascading systemic failures. There's also something to be said about either keeping businesses small enough that failure of a handful of them won't collapse markets, or else single-purpose enough that they have less direct effects on multiple markets. The flip side is that diversification across markets should tend to stabilize firms, and larger firms are also more able to effectively diversify.

This is essentially what movie studios do: a separate, new company produces each film. (Here though the main goal isn’t liability, it’s to insulate the BigCo from losses, and avoid paying those that made the film that don’t have star contracts.)

For a corporation with thousands of employees and R&D labs, etc, the administrative overhead has to be massive. Like working for Alphabet times 100. An employee would be switching their legal employer every few months, every time they switch teams, all the time; new payroll, new health plan enrollment, etc. People would just Nope the F out of that place.

Surely you'd just be employed by the internal HR company and on the books each product company would be contracting your services according to timesheets.

It's pretty easy to pierce the corporate veil for these separate but not really separate LLCs. They have to be bona fide separate companies to enjoy the LLC protection.

Yeah, but then the internal HR company has all the money and also has all the liability. So you've gained nothing for all that administrative headache.

Real estate is a special situation with lots of subcontracting. They can make it work. In big multi-unit residential cities like NYC and Chicago, the doorman in that high-rise is in a union that provides all his benefits and has a set pay scale. The building ownership just contracts all that stuff out to the union. But that doorman can go work in some other building owned by some other owner too. You don't want that happening with your corporate employees developing and managing your consumer products.

Sounds like you’ve made a valid prediction for a future consisting of high frequency individual tax loopholes to me.

This is effectively how all real estate works. I'm not quite sure why this doesn't work for things like software, but from my understanding owning actual property makes it significantly more possible / legal.

I’ve worked in environments where legal entities were kept in a database because there were enough of them to make it worthwhile.

this is different, the actual underlying asset is at stake for liabilities it causes. This is the whole point of corporations.

The analogy would be if a landlord created a shell company, and then only gave that company it's legal liabilities without any assets. That's what J&J did here and why this case is so obviously egregious.

If you could do that, it would be a get out of jail free card for all legal liability in all cases. It's essentially renouncing rule of law

The top comment on the whole thread explains that my above explanation is slightly off. For a better explanation see

https://www.investopedia.com/texas-two-step-bankruptcy-defin...

That exact strategy is very common for owners of small general aviation aircraft. From what I understand it is primarily for liability reasons just like you propose.

There's a secrecy reason as well for some (the FAA registry will show "N1234, LLC" as the owner) as well as a sales tax avoidance reason for others. ("I didn't buy an airplane for which I'd owe sales tax on; I bought a company for which no sales tax is due.")

In the case of liability avoidance, it's hard to do if the (real-world human) owner of the airplane is also the pilot at the time of any accident. They might not be able to sue you as the owner, but they can still sue you/your estate as the pilot, or the person who oversaw the maintenance, etc.

Many people where I am own GA aircraft as a syndicate - everyone is a shareholder in a company and you get x hours per year of flight time per share, and have to pay your share of the costs.

I imagine that the limited liability helps if there are say 20 people in the syndicate and you own a share of it. One of the other members can crash the aircraft into something expensive, and as long as it had nothing to do with you or your negligence, you shouldn't be liable beyond your share value going to 0 (or having to pay up any unpaid capital to the book value of your share)

An unincorporated partnership would make this much riskier.