Piercing The Corporate Veil: When Can the Owners Be Liable?

Conducting business as a corporation or limited liability company (LLC) generally protects the business owner’s personal assets from liability claims against the company. This protection is afforded because corporations and LLC’s are viewed as separate entities, distinct from the business owners, thus creating a “corporate veil.” However, Florida law allows in certain circumstances for that veil to be “pierced,” allowing for creditors to go after the owner’s individual assets.

In Florida, “piercing the corporate veil” is governed by the Florida Supreme Court case Dania Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114 (Fla. 1984). The court held “the corporate veil may not be pierced absent a showing of improper conduct.” This language is very vague and has resulted in subsequent litigation giving meaning to the rule.

Here are some of the circumstances courts have found the “corporate veil” to have been pierced:

  • The commingling of funds and other assets, failure to segregate funds of separate entities, and the unauthorized diversion of corporate funds or assets to other than uses.
  • An individual treats a corporations assets as his or her own.
  • Stocks are issued without obtaining authority to do so.
  • Failure to maintain minutes or adequate corporate records and the confusion of the records of the separate entities.
  • The identical equitable ownership in two separate entities; the identification of the directors and officers of the two entities as the responsible supervision and management; identification of the equitable owners with the domination and control of the two entities; sole ownership of all of the stock in a corporation by one individual or the members of a family.
  • Forming a new corporation to with the purpose to transfer to it the existing liability of another entity.
  • The use of the same business location or office and the employment of the same employees or attorneys, or both.
  • The failure to adequately capitalize a corporation or the total absence of corporate assets and under-capitalization.
  • The use of a corporation as an instrumentality for a single venture or the business of an individual or another corporation.
  • The use of a corporate entity to procure labor, services, or merchandise for another person or entity.
  • The failure to maintain an arm’s length relationship among the related parties and the disregard of legal formalities.
  • The concealment and misrepresentation of the identity of the responsible ownership, management, and financial interest, or concealment of personal business activities.
  • Contracting with the intent to avoid performance by use of a corporate entity as a shield against personal liability, or the use of a corporation as a subterfuge of illegal transactions.

If you need to discuss piercing the corporate veil, either defending or attacking, in Miami-Dade, Broward, Monroe, Collier or Lee County Florida, schedule a consultation with the experienced attorneys at EPGDLaw today, located in beautiful Coral Gables. Call us at (786) 837-6787 or e-mail us to schedule a consultation.

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Categories: Business Law