‘Wear Plain Clothing’: The LLC Governance Failure That Made Headlines

In Stockbridge v. Industrious National (Illinois 2023), a co-working company created a subsidiary LLC to sign an office lease, then abandoned it when the lease underperformed. The court found the subsidiary had no independent governance and was a mere instrumentality of its parent. The parent was held liable for the subsidiary’s obligations.

“Wear plain clothing. Be discreet.”

Those were the instructions the parent company gave the movers. The job was to quietly relocate tenants out of an underperforming Chicago office building — the same building the company’s subsidiary had signed a lease for, the same lease the subsidiary was about to default on.

The parent company had funds. The subsidiary did not. The parent had decided not to pay the rent, so it instructed its movers to extract the tenants before the landlord could notice. The instruction itself is the detail that turns the case from a routine commercial dispute into a study in what veil piercing looks like in 2023.

The Setup: A Subsidiary Built to Be Disposable

Industrious National Management Co. operated a co-working business with offices in multiple cities. To sign a long-term lease for office space at 600 West Jackson Boulevard in Chicago, the company formed a subsidiary LLC. The lease was in the subsidiary’s name. The parent was not a party to it.

This structure is common. Parent companies routinely create subsidiaries to sign leases, hold real estate, or carry specific business risk. The legal purpose of the structure is to limit the parent’s exposure: if the subsidiary defaults, the landlord’s remedy runs against the subsidiary, not against the parent.

That is the theory. The Illinois Appellate Court’s decision in Stockbridge 600 West Jackson, LLC v. Industrious National Management Co. LLC shows what happens when the theory is built on paper alone.

The Failure: When the Market Turned

The co-working market softened. The Chicago lease became unprofitable. The subsidiary — which existed for no purpose other than to hold the lease — defaulted and claimed it had no assets. Stockbridge, the landlord, sued the parent company on the theory that the subsidiary was the parent’s alter ego and the parent should pay.

The trial court agreed. The appellate court affirmed. The case is now part of the established record on parent-subsidiary veil piercing in Illinois.

The decisive facts are the ones the parent never thought would matter. The parent had funds to pay the rent and chose not to. The parent had instructed movers to secretly relocate tenants away from the building — the “wear plain clothing” and “be discreet” instructions. The subsidiary did not negotiate in good faith with the landlord. And, underneath all of it, the subsidiary had no independent governance — no separate decision-making, no documented authorization for the lease in its own name, no formal independence from its parent.

What ‘Mere Instrumentality’ Actually Means

Illinois applies a two-prong test for veil piercing. The court must find both:

1. Unity of interest and ownership — the entity and its owner (or parent) are so intertwined that their separate personalities no longer exist as a practical matter.
2. Fraud or injustice — adherence to the fiction of separate existence would sanction a fraud or promote injustice.

The first prong is the documentary prong. It is satisfied when the court can find no records, no resolutions, no governance trail proving the subsidiary operates as a distinct entity. The second prong is the equitable prong. It is satisfied when a court looks at the conduct — the funds available but not used, the discreet relocations, the failure to negotiate — and concludes the structure exists to harm the counterparty.

Stockbridge hit both prongs. The first because the subsidiary had no independent governance. The second because the parent’s conduct made the inequity unmistakable.

What Governance Records Would Have Changed This

The first prong is where governance records do their work. If the subsidiary had its own independent governance trail, the court’s task on the first prong becomes harder — not impossible, but harder. The records that matter:

Annual Written Consent — per entity

Each year, the subsidiary’s members or managers should formally review the subsidiary’s operations, confirm officers, authorize banking, and ratify decisions taken during the year. The annual written consent is the document that shows the subsidiary’s governance is happening as a separate process, in the subsidiary’s own name, on the subsidiary’s own schedule.

Separate authorization for the lease

The lease itself was the central transaction. A formal resolution authorizing the subsidiary to enter the lease — identifying the subsidiary as the contracting party, naming the authorized signers, and specifying the terms — documents that the subsidiary made its own decision to sign. Without that resolution, the lease looks like a parent-level decision executed under a subsidiary’s name.

Independent financial management

Banking resolutions establishing the subsidiary’s own bank accounts and signers, documented capital contributions, and distribution authorizations create a paper trail of independent financial life. The court asked whether the subsidiary could pay the rent. If the subsidiary had documented its own funding decisions — how much capital it received, what it could draw on, what it could not — the answer to that question would have been on the record.

Documented decision-making

Single resolutions for material decisions, member or manager actions in the subsidiary’s name, and documented separation between the parent’s decisions and the subsidiary’s decisions are the structural antidote to a “mere instrumentality” finding. The records do not need to be elaborate. They need to exist, they need to reference the subsidiary specifically, and they need to be created in the ordinary course of business.

What This Means for Multi-Entity Structures

Parent-subsidiary structures are not bulletproof. The protection a subsidiary provides depends entirely on whether the subsidiary functions as an independent entity. Forming the subsidiary, filing it with the state, and signing contracts in its name are not enough.

Every entity in a corporate family needs its own governance trail. That includes the parent, but it especially includes the subsidiaries. The subsidiary is where veil-piercing analysis lands first — it is the entity that defaulted, the entity the counterparty is going to sue, the entity whose independence is on trial. If the subsidiary has no annual written consent, no documented authorization for its major contracts, no record of its own decision-making, the case starts on the worst possible footing.

This pattern is not new. The Stockbridge facts — subsidiary signs lease, subsidiary defaults, parent claims no responsibility — map directly to the multi-entity governance failure documented in our Binsara v. Bolog case study, where an Ohio court pierced the veil of six separate entities at once. Different facts, same root cause: entities that look independent on paper but cannot show independence in their records.

What This Means for Your LLC

Even if you only have one LLC, the principle is the same. An LLC without its own documented governance looks like an extension of its owner, not a separate entity. The “mere instrumentality” doctrine that pierced Industrious National’s subsidiary is the same doctrine that pierces single-member LLCs every day in courts across the country.

The mechanics are different — you are not a parent company, your LLC is not a subsidiary — but the analysis is identical. A court evaluating whether your LLC operates as a separate entity asks the same first-prong question: are there governance records that show the LLC makes its own decisions, holds its own funds, authorizes its own actions?

An operating agreement is not enough. Formation documents are not enough. Filing your LLC with the state is not enough. What carries the day is the ongoing governance record: the annual written consents, the banking resolutions, the documented authorizations for the decisions that matter.

For state-specific veil-piercing standards across every U.S. jurisdiction, see our state-by-state veil piercing case law guide. For other case studies showing exactly how courts evaluate governance records in practice, see our real-cases roundup. For a broader overview of how owners lose protection in everyday situations, see the five common ways LLC owners lose personal asset protection.

The Lesson

Stockbridge v. Industrious National is not a story about a co-working company. It is a story about what happens when a subsidiary exists on paper and nowhere else. The instruction to movers to “wear plain clothing” is the detail that drew the headlines. The decision underneath it — to use a subsidiary as a disposable shell without giving it its own governance — is the decision the court actually punished.

The defensible posture is the same whether you operate one LLC or twenty. Each entity must function as itself. Each entity must produce its own governance trail. Each entity must make and document its own decisions, in its own name, through its own process.

The records do not need to be elaborate. They need to exist. They need to reference the specific entity. They need to be created in the ordinary course of business. And they need to do so consistently, year over year, transaction by transaction.

For weighing how to produce records that meet this standard, see our comparison of governance options — free templates, registered agent services, and purpose-built document automation. For the full Illinois veil-piercing analysis and the related Fontana case, see our Illinois veil piercing guide.