Typically, entrepreneurs choose to open limited liability companies (LLCs) to avoid the personal responsibility of corporate obligations. As its name suggests, the main advantage of forming an LLC in Florida is obtaining protection against personal liability.
However, is it possible to be personally liable for an LLC in Florida? Keep reading this article to find out.
Limited Liability Company vs Personal Liability – An Overview
Limited liability companies grant their owners (members) a high level of protection against personal liabilities regarding business-related debts and obligations. However, it does not mean that it is sufficient to ensure limited liability protection in court.
For example, when an LLC fails to pay a creditor, he can proceed with a lawsuit against one of the business’s members and claim they are personally liable for the business-related debts.
If the litigation process continues and such claims are deemed true, a Florida court can waive the company’s limited liability and determine the owner(s) are liable for the business’s liabilities. In business law, this is known as “piercing the corporate veil”.
Typically, a court in Florida may decide to pierce the corporate veil of an LLC when the company is extremely undercapitalized to pay its debt(s), its owners have intermingled identities or the company incurred wrongful actions (e.g., fraud).
Limited Liability Company vs Personal Liability in Florida – As Provided by Law
Florida Statute §605.0304(1) provides that “a debt, obligation, or other liability of a limited liability company is solely the debt, obligation, or other liability of the company.”
Additionally, ” a member or manager is not personally liable, directly or indirectly, by way of contribution or otherwise, for a debt, obligation, or other liability of the company solely by reason of being or acting as a member or manager.”
Florida’s common law also re-enforces the concept of separation between a legally organized entity from its owner, as well as the prohibition of piercing the corporate veil without evidence that the entity was either organized or used to mislead creditors or commit fraud.
In this sense, LLCs owners have protection under Florida’s Revised Limited Liability Company Act even when they do not observe corporate formalities.
Limited Liability Company vs Personal Liability in Florida – Exemptions to the Rule
Nonetheless, there are exceptions to the rule that LLC members are not personally liable for business-related obligations. As provided by Florida Statutes, it is also possible to hold a member of an LLC accountable without piercing the company’s corporate veil, such as:
- When a member or manager of an LLC individually commits tortious conduct
- When a member or manager of an LLC is personally responsible for taxes owed to the United States
- When a member or manager of an LLC is personally liable for taxes owed to the state of Florida
- When a member has a written obligation to make future contributions
- When there is an execution of an agreement for a yet-to-form LLC before its organization
Plus, when there is a violation of Florida Statute §605.0405 (Limitations on distributions), a Florida court can impose liability on the transferee and the members of a member-managed LLC.
Are You Personally Liable for an LLC in Florida? – Piercing the Corporate Veil of an LLC
Generally, courts in Florida are not willing to pierce the corporate veil of a company. Florida case law demonstrates this point, as it is possible to observe in cases such as Dania Jai-Alai Palace, Inc. v. Sykes (1984).
On the occasion, Florida Supreme Court provided that a business’s “corporate veil may not be pierced absent of showing of improper conduct.”
To plead a court in Florida to pierce an LLC’s corporate veil, the plaintiff must prove the lack of separation between the company and its member(s), demonstrating the existence of misconduct associated with the business’s activities.
Avoid Personal Liability by Working with an Expert Business Attorney
Although structuring a company as a limited liability company in Florida has advantages such as operational flexibility and asset protection, it is crucial to work with an expert business attorney to avoid potential liabilities.
An expert legal advisor will help by making business members understand all liabilities associated with their company (e.g., tax obligations), as well as ensuring full compliance with state and federal laws.
Do You Need Protection Against Personal Liability in Florida? – Work with Jurado and Farshchian, P.L. Today
If you need a legal expert to assess your case and tailor a strategy to preserve your company’s legal liability protection, call Attorney Romy B. Jurado at (305) 921-0976 or send an email at [email protected] to schedule a consultation.