Corporations As a Way to Evade the Law

In my post on the Company Town from yesterday, I mentioned a scam perpetrated on young people. OkieLawyer had a comment I found interesting…

“I remember when I first started practicing law, I had a potential case involving the group here in Oklahoma. When I investigated them, I found out that the people who owned the businesses kept creating new corporations every few months — seemingly staying one step ahead of the law.”

That got me thinking about Enron… much of their deception involved moving debts and losses into other corporations, making Enron look much more profitable than it was.

The two situations – the one OkieLawyer mentions, and Enron, have a few things in common, but one is the creation of a large number of corporations when an honest business would not have had a need to create more than one or two. I’ve had occasion to create one or two in the past few years myself… I have a pretty good idea of what they’re useful for, and I can’t see any reason for even a particularly entrepreneurial individual to create more than one or two a year – in a busy year – a person can pay attention to only so many things at a time.

Is the creation of a large number of corporations (large being some X for an individual and some Y for Fortune 500 company, where Y > X) a sign that funny business – either something illegal or some form of Large Accounting Firm enabled tax evasion – is being perpetrated? Should there be limits to the number of corporations a person or other entity can create over a short period of time?