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The Fragile Nature Of The Corporate Veil

Business Disputes In Orlando

When starting a business, one of the first decisions you must make is the type of entity you will use to run your business. For many in Florida, the limited liability company or corporation is the most desirable because they offer protection of the business owner’s personal assets in the event that the business becomes liable for debts or damages. This separation of the corporation’s assets from those of the owner or shareholders is called the corporate veil.

If you own a corporation or LLC, you may feel impervious to lawsuits or creditors who may seek your personal assets because you have the protection of the corporate veil. However, it is important that you understand the limitations of that protection. In fact, you may not realize that certain actions by business owners or shareholders may dissolve the separation between you and your business.

What might pierce the corporate veil?

Running your business as a corporation or LLC offers you some security. If your business goes into debt, for example, you may not fear losing your home or personal savings. However, the corporate veil does not protect you in every circumstance. The term “piercing the corporate veil” refers to situations where the entity of the owner or shareholders and the entity of the business are no longer separate, placing the owner or shareholders at risk of personal liability. The following are examples of actions that may pierce the corporate veil:

  • Mixing your personal finances with those of the business
  • Using the business to commit fraud
  • Acting egregiously by placing the corporation’s prosperity over the good of the public
  • Using business funds for personal use, even as a loan
  • Keep poor or inaccurate financial records
  • Failing to pay state and federal payroll taxes
  • Misusing business credit cards for personal use
  • Using your personal assets as collateral for a business loan
  • Signing contracts or loan agreements personally without the backing of the shareholders

If these or other circumstances exist and you are facing legal action, your personal property may be in jeopardy. As with most elements of business law, Florida’s statutes may be different from those in other states. You may also be dealing with matters of federal law. This is why, at the earliest sign that you may be at risk of personal liability, you would be wise to seek the advice of an attorney who has experience in state and federal litigation.

By : admin | July 15, 2020 | Business Litigation