Limited Liability in Florida: What Is The ‘Corporate Veil’?
Limited liability is one of the biggest benefits that comes with forming your business as a corporation or as an LLC. Generally, limited liability will protect the personal assets of stakeholders of the corporation in the event that the business is sued. However, there are a few exceptions to the general rules of limited liability. In some cases the ‘corporate veil’ may be ‘pierced’ and your personal assets might be at risk. It is important that business owners understand the exceptions so that they know how to protect themselves. If you have any questions about limited liability for corporations in Florida, an experienced West Palm Beach business litigation attorney can help.
Protect Your Limited Liability Status
Corporations and LLCs have limited liability, but that benefit comes with two basic requirements:
- Adequate funding: A corporation needs to be funded with assets that are sufficient for its business operations. Of course, this does not mean that corporations will always have enough assets to cover their costs. Many unpredictable events arise in the course of running a business.
- Separation of assets: Limited liability offers a basic trade off, in exchange for protecting personal assets, business owners are required to keep personal and corporate assets entirely separate.
Piercing the Corporate Veil
The term ‘piercing of the corporate veil’ refers to the uncommon situations when a corporation’s stakeholders can be held personally liable. Generally, this occurs when either one of the two basic requirements of limited liability is violated. Your personal assets may be at risk if your company is:
- Undercapitalized: When the stakeholders of a business fail to reasonably fund their corporation, they may become personally liable. The requirement is relatively simple; all corporations must be funded to a level that accounts for reasonable foreseeable risks. Undercapitalization occurs when a corporation ignores the likely risks. A common example of undercapitalization is when new corporations undertake a risky venture. If the founders decline to put proper assets into the corporation, they may be held personally liable in the event something goes wrong. Florida law views undercapitalization as trying to take advantage of the benefits of limited liability in an improper way.
- A Dummy Corporation: Essentially, Florida courts will view a business as a ‘dummy corporation’ if there is no legitimate separation between the business and the people behind it. Limited liability cannot be used a shield to protect personal assets without this separation. As was mentioned, it is simply part of the bargain of limited liability.
In either scenario, the corporate veil is pierced because one of the basic requirements of limited liability is violated. Limited liability is meant to protect real business ventures that have real assets behind them. If a court views you as trying to take advantage of the system, you may lose limited liability protection. Determining where that is drawn is often very complicated. An experienced attorney can help protect your personal assets from another party trying to improperly pierce the corporate veil in your case. You deserve limited liability protection when you follow the rules.
Contact An Experienced West Palm Beach Business Litigation Attorney
It is important that you do not make any mistakes which could put your assets at liability risk. The business litigation attorneys at Pike & Lustig, LLP have extensive experience protecting our business clients. If you have any questions about limited liability, please contact our office today to schedule a free case evaluation.