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A corporation is a legal entity separate and distinct from its shareholders.  The corporate form usually protects shareholders from personal liability for the corporation’s debts. Nevertheless, shareholders cannot use corporate status to limit their liability, and then use the corporate form to cover their fraud.  Under such conditions, a party may seek to “pierce the corporate veil” and hold shareholders of the corporation personally liable.  Florida courts are generally averse to disregard the corporate form thus, they call for a showing of improper conduct in the formation or use of the corporation.

A plaintiff must demonstrate three factors in order to pierce the corporate veil:

  1. The shareholder “dominated and controlled the corporation to such an extent that the corporation’s independent existence, was in fact non-existent” and the shareholders were alter egos of the corporation;
  2. The corporate form was used for a fraudulent or improper purpose; and
  3. The fraudulent or improper use of the corporate form caused injury to the plaintiff.

If a plaintiff is able to prove these three factors, then a court may pierce the corporate veil.  For example, in the Fourth DCA case Eagle v. Benefield-Chappell, Inc., 476 So. 2d 716 (Fla. 4th DCA 1985), the court held two shareholders personally liable when the corporation was used to fraudulently increase construction costs to result in a higher fee to the corporation. A court can also pierce the corporate veil in a case where a controlling shareholder causes the corporation to make distributions or otherwise deplete corporate assets for their own personal benefit while the corporation is unable to pay its debt.

On the other hand, the Third DCA in Gasparini v. Pordomingo, 972 So. 2d 1053 (Fla. 3d DCA 2008) declined to pierce the corporate veil absent a finding of fraud, stating that “mere ownership of a corporation by a few shareholders, or even one shareholder, is an insufficient reason to pierce the corporate veil.”  In Houri v. Boaziz, 196 So. 3d 383 (Fla. 3d DCA 2016), the Third DCA furthermore declared that “even if a corporation is merely an alter ego of its dominant shareholder or shareholders, the corporate veil cannot be pierced so long as the corporation’s separate identity was lawfully maintained.”

Other improper conduct that may substantiate piercing the corporate veil includes commingling funds of the corporation with funds of other corporations, commingling corporate funds with personal funds, utilizing corporate assets for personal use, failing to adequately capitalize the corporation, and using the corporate form to hide assets or otherwise avoid liability.

If a party effectively pierces the corporate veil, the corporation and shareholder will be treated as one person under the law and any acts committed by either the corporation or the shareholder are treated as the acts of both.  Thus, if either the corporation or shareholder is bound by a contract, judgment, or otherwise, both the corporation and the shareholder will be likewise bound.

Sweeney Law, P.A. Has Vast Experience in Prosecuting and Defending Claims Relating to Piercing the Corporate Veil

Brendan A. Sweeney, Esq., LL.M., of Sweeney Law, P.A., a boutique firm in Fort Lauderdale, Florida, regularly handles complex transactional and litigation matters throughout Florida. Brendan A. Sweeney, Esq., LL.M. is an AV Preeminent Martindale Rated Attorney, that has been recognized as a Florida Super Lawyer in 2019, Florida Legal Elite in 2019, and as a Florida Super Lawyer Rising Star in 2018, 2017, 2016, 2015, and 2014. If you have any piercing the corporate veil questions and/or issues then contact Sweeney Law, P.A. at (954) 440-3993 immediately to protect your rights. www.sweeneylawpa.com.

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