Reexamining the Collective Entity Doctrine in the New Era of Limited Liability Entities–Should Business Entities Have a Fifth Amendment Privilege

Abstract

One of the most significant developments in United States law at the end of the twentieth century has been the remarkable proliferation of new forms of business entities. The LLC form, in particular, is fast becoming the business form of choice for small start-up businesses. Small businesses that twenty or even ten years ago might have opted to incorporate are now choosing to do business as LLCs. More important for purposes of this article, as the advantages of the LLC form are becoming better known, many individuals who in the past would have simply carried on their business affairs as sole proprietorships are now forming LLCs. This is particularly true in states with LLC statutes that provide for single-member LLCs. Even in states that do not provide for single-member LLCs, it is relatively easy for a sole proprietor to satisfy the statutory requirements by having a family member or other trusted person serve as an additional member of the LLC. This trend is important because formation of an LLC may have an unintended consequence that business owners (and even their counsel) do not foresee at the time of formation–loss of the sole proprietor’s ability to assert a Fifth Amendment privilege against self-incrimination when responding to a grand jury subpoena or other compulsory process seeking his or her business records. Appreciation of this point requires consideration of the “collective entity doctrine” that the Supreme Court has developed when applying the Fifth Amendment to business entities. This Article analyzes the exploding use of new forms of limited liability business entities, and the application of the collective entity doctrine to those new entities, necessitates a re-examination of the collective entity doctrine.