Piercing the Corporate Veil in Florida
Limitations to corporate liability protection. Principles discussed are of general application, though legal authorities cited are based on Florida law.
One of the principle advantages of incorporating your business is liability protection. The purpose of this discussion is to highlight certain limitations to that protection.
In the aftermath of recent scandals (e.g. Enron, Anderson Consulting), the law has shifted somewhat to make it easier for plaintiffs to “pierce the corporate veil.” That term, also known as “disregarding the corporate fiction,” refers to the situation where the court allows the plaintiff to reach the personal assets of the defendant owner(s) rather than limiting the plaintiff to recourse against the corporate assets. Similarly, under the same principle, it may also be possible for plaintiffs to reach the assets of other corporations belonging to the defendant owner.
In Florida, courts require a showing of three factors in order to pierce the corporate veil:
1) The corporation is dominated and controlled by its shareholder(s) in such a way that it is merely an “alter ego” used for the shareholders’ benefit,
2) Some sort of improper conduct in either the formation or the use of the corporate form, and
3) The improper conduct imposes an injury on the claimant.
Districts in South Florida tend to focus on the second element: “A critical issue in determination of whether the corporate veil will be pierced for imposition of personal liability is whether the corporate entity was organized or operated for an improper or fraudulent purpose.”
The question then is what constitutes such misconduct. Misconduct may be found where the corporate identity is used:
1) to defraud creditors,
2) to evade existing obligations,
3) to achieve a perpetual monopoly, or
4) to protect knavery or crime.
5) where the owner commits an illegal act as an individual rather than by formal corporate action.
6) where property is used interchangeably without regard to corporate identity.
The good news for owners is that Florida is a conservative state and courts here are reluctant to pierce the corporate veil. Exceptions will usually only be made where the plaintiff successfully shows the corporation is formed or used for some illegal, fraudulent, or other unjust purpose.
ABOUT THE AUTHOR: Jeffrey Harrington, Esq.
Jeffrey Harrington graduated from a top-tier university in Southern California, which he attended on a merit scholarship. Jeffrey concentrated his legal studies on corporate law and international business transactions. Through his academic achievement, he was awarded a coveted and extremely competitive clerkship with Clifford Chance in Barcelona, Spain.
After finishing his juris doctorate, Jeffrey moved to South Florida and worked for an international manufacturing company, where his duties included drafting/reviewing contracts, import/export, labor law, compliance, collections, and disputes. Before starting his own practice, Jeffrey also worked as an in-house advisor for a real estate brokerage firm handling transactions, joint ventures, investor matters, developer matters, and disputes.
Jeffrey’s Palm Beach County practice focuses on general business and real estate law, both transactions and disputes, and his niche is international transactions.
Copyright Harrington Legal Alliance
Disclaimer: Every effort has been made to ensure the accuracy of this publication at the time it was written. It is not intended to provide legal advice or suggest a guaranteed outcome as individual situations will differ and the law may have changed since publication. Readers considering legal action should consult with an experienced lawyer to understand current laws and.how they may affect a case. For specific technical or legal advice on the information provided and related topics, please contact the author.