Different business structures allow shareholders to enjoy limited liability, which results in no personal liability for the company’s debts. In this article, you will discover whether creditors can pierce the corporate veil of a limited liability company (LLC) in Florida.
Pierce the Corporate Veil – Explaining the Concept
In a limited liability company (LLC), the owners of the company are referred to as “members.” If the LLC incurs any debts, the entity’s creditors cannot file a claim to receive the owed amount from members.
Limited liability protects the members’ personal assets from business liabilities and shields the company’s assets against any member’s personal creditors.
LLCs are treated as separate legal entities from their members. Piercing the corporate veil of an LLC refers to a legal decision to treat the legal entity and its members equally, applying the same rights and duties to both.
In certain cases, LLC creditors can file in court to collect from the member’s personal assets. Depending on the circumstances involved in the case, the court may pierce the company’s corporate veil, allowing the creditor to collect from the owner’s assets to satisfy a business debt.
Can Creditors Pierce the Corporate Veil of a Florida LLC? – Taking a Closer Look
It is not common to find cases in which a Florida court pierced an LLC’s corporate veil. While it is possible, Florida case law tends to have a more business-friendly approach compared to other states.
When asking a court to pierce the corporate veil of an LLC, the creditor’s petition must be based on solid legal grounds. Florida courts consider three key requirements to determine whether the actions of an LLC member justify piercing the corporate veil.
As long as the creditor’s petition meets all the requirements, the court may determine the LLC’s corporate veil to be pierced. The first requirement is to prove that the LLC is only an alter-ego of the debtor. It is necessary to prove that the LLC was used by a member for “mere instrumentality.”
The creditor must demonstrate that the debtor controlled the entity to an extent that the company was not independent status did not exist. Examples of actions that may create grounds for this claim include:
- Failing to meet corporate formalities
- Failing to properly fund the company
- Comingling business assets with personal assets
The second requirement is to show that the company was formed for wrongful or fraudulent purposes. For example, if a Florida resident forms an LLC to evade responsibility for debts or mislead creditors, it will likely have the entity’s corporate veil pierced.
The last requirement is to demonstrate that the LLC’s improper instrumentality resulted in damages to the creditor. Please note that a court will not pierce a company’s corporate veil due to the simple failure to pay a debt.
A court may only pierce an LLC’s corporate veil if the creditor demonstrates a direct cause between the use of the business entity as a facade and the plaintiff’s injury.
LLC Corporate Veil Florida – Immediately Contact Jurado & Associates, P.A.
Whether you are an LLC member or a creditor, avoid costly mistakes. Consult with a well-versed attorney from Jurado & Associates, P.A. by calling (305) 921-0976 or emailing Romy@juradolawfirm.com for expert legal guidance.