Piercing the Corporate Veil in Business Disputes: What South Florida Business Owners Need to Know

“Piercing the corporate veil” allows commercial and judgment creditors to hold shareholders, officers and directors personally responsible for a corporation’s liabilities. This is only an option in limited circumstances; and, to pierce the corporate veil, a creditor must be able to prove that piercing is warranted. With that said, piercing claims can pose significant risks, and targeted individuals must be prepared to defend themselves effectively. This starts with engaging an experienced Miami civil litigation attorney.

In Florida, the general rule is that corporate shareholders, officers and directors are not personally responsible for a corporation’s debts. The corporate form provides liability protections for these individuals; and, in most cases, plaintiffs are restricted to pursuing claims at the entity level.

But, the “piercing” doctrine creates one major exception.

If a plaintiff can “pierce the corporate veil” in civil litigation, the plaintiff can pursue a claim for damages against a corporate shareholder, officer or director in his or her individual capacity. As a result, facing a piercing claim is a serious matter, and targeted individuals must rely on experienced legal counsel to help shield them to the fullest extent possible.

The Three Requirements for Piercing the Corporate Veil in Florida

Under Florida law, plaintiffs must meet three requirements to pierce the corporate veil. If a plaintiff files a successful lawsuit against a corporate entity and the entity is unable to pay, the plaintiff can pierce the corporate veil only upon showing that:

1. The Corporate Entity was an Alter Ego or Mere Instrumentality

To pierce the corporate veil, a plaintiff must first be able to show that the corporate entity was nothing more than an alter ego or mere instrumentality for the individual (or individuals) targeted. Essentially, this means that, despite technically having been formed, the corporate entity was effectively non-existent for all other practical and legal purposes.

2. The Corporate Entity was Formed or Used for an Unlawful Purpose

In addition to showing that the corporate entity was an alter ego or mere instrumentality, the plaintiff must also show that the entity was formed or used for an unlawful purpose. This typically requires proof of some form of fraudulent intent, such as an intent to defraud creditors or otherwise incur liabilities with no intention of paying.

3. The Unlawful Use of the Corporate Entity Caused the Plaintiff’s Harm

Finally, a plaintiff who is attempting to pierce the corporate veil must also be able to prove that the unlawful use of the corporate entity caused the plaintiff’s harm. The simple fact that a creditor is not able to collect from the entity directly is not sufficient on its own to meet this “causation” threshold.

Defending Against an Attempt to Pierce the Corporate Veil

While plaintiffs face an uphill battle when pursuing piercing claims in Florida, plaintiffs can—and do—succeed. With this in mind, targeted shareholders, officers and directors need to take all piercing attempts seriously. Depending on the specific allegations and circumstances at hand, some examples of potential defense strategies in piercing cases include:

• Disputing the Corporate Entity’s Liability – Corporate shareholders, officers and directors can only face personal financial responsibility if the corporate entity is liable for the plaintiff’s claim. As a result, disputing the corporate entity’s liability will be a first line of defense in many cases.
• Defending Against “Alter Ego” or “Mere Instrumentality” Allegations – Targeted individuals can also defend against piercing efforts by disputing allegations that the corporate entity was an alter ego or mere instrumentality. This can involve demonstrating that sufficient corporate formalities have been observed and that the business has been operated at the entity level.
• Demonstrating a Lawful Purpose (or Disputing Allegations of an Unlawful Purpose) – Since the burden of proof is on the plaintiff, targeted individuals can also defend against piercing efforts by disputing the plaintiff’s allegations of an unlawful purpose. While demonstrating a lawful purpose is an option, this is not necessarily required.
• Challenging the Plaintiff’s Allegations of Causation – Similarly, disputing the plaintiff’s allegations of causation can be a viable defense strategy as well. If a targeted shareholder, officer or director can show that the plaintiff’s case is deficient in any respect, this should be enough to avoid personal liability.

Again, these are just examples. As noted above, the specific defenses that are available in any particular case will depend on the specific circumstances involved. A Miami civil litigation attorney who has experience in piercing cases will be able to evaluate all potential defenses and formulate a targeted defense strategy focused on securing a favorable resolution as cost-effectively as possible.

FAQs: Defending Against an Attempt to Pierce the Corporate Veil in South Florida

What does it mean to “pierce the corporate veil”?

By default, corporate shareholders, officers and directors are shielded from liability for the corporation’s debts. However, plaintiffs can seek to hold shareholders, officers and directors personally responsible in certain, limited circumstances. This is referred to as “piercing the corporate veil.”

Can corporate shareholders, officers and directors face personal liability without piercing the corporate veil?

Yes, it is possible for shareholders, officers and directors to face personal liability without piercing the corporate veil in certain circumstances. For example, these individuals can generally be held liable for torts committed in their individual capacity (even if these torts were committed on behalf of the corporation), and those who have signed personal guarantees can face contractual liability as well.

Do I need to hire my own attorney if I am facing a piercing claim?

Yes, if you are facing a piercing claim, you should hire independent legal counsel. In this scenario, there are potential conflicts that will make it inadvisable (if not  impossible) for your company’s attorney to represent you in your individual capacity.  

Schedule a Call with an Experienced Miami Civil Litigation Attorney

If you need defense counsel for an attempted piercing case in South Florida, we encourage you to contact us promptly. To schedule a call with an experienced Miami civil litigation attorney at Gonzalez Law Offices, P.A., please call 305-676-6677 or inquire online today.