What Is the Corporate Veil?
When an entrepreneur forms a corporation or a Limited Liability Company (LLC) in Florida, the law treats that business as an entirely separate "person." The invisible barrier between the business entity and the human beings who own it is known as the corporate veil.
The corporate veil provides limited liability. If an LLC buys a commercial building, defaults on the mortgage, and owes the bank $1 million, the bank can seize the building and bankrupt the LLC. However, because of the corporate veil, the bank cannot sue the LLC's owners personally or seize their private homes and bank accounts to satisfy the business's debt.
Piercing the Corporate Veil
While the corporate veil is a powerful shield, it is not indestructible. In real estate litigation, plaintiffs will frequently attempt to pierce the corporate veil. If a judge agrees to pierce the veil, the owners lose their protection and become personally liable for the company's debts.
Florida courts will only pierce the veil in cases of extreme misconduct, usually requiring proof of the "Alter Ego" theory:
- Commingling Funds — The owner uses the LLC's business bank account as their personal piggy bank, paying their home mortgage or grocery bills directly from the corporate account.
- Undercapitalization — The owner creates an LLC to sign a massive commercial lease but never actually puts any money into the LLC, purposefully designing it to go bankrupt the moment it gets sued.
- Fraud — The owner uses the LLC as a shell to intentionally defraud creditors or hide fraudulent conveyances.
Protecting the Veil
To keep the corporate veil strong, real estate investors must respect corporate formalities. They must maintain a separate Certificate of Good Standing, hold annual meetings, use corporate resolutions for major decisions, and sign contracts exclusively in the name of the LLC (e.g., "John Doe, Managing Member"), never just their own name.
Related Terms
- Corporation — The legal entity that creates the veil
- Personal Guaranty — A contract where an owner voluntarily bypasses the veil to secure a loan
- Civil Complaint — The lawsuit that may attempt to pierce the veil
Barnes Walker Corporate Defense
Barnes Walker's trial attorneys fiercely defend Florida real estate developers and LLC owners against aggressive plaintiff lawsuits attempting to pierce the corporate veil, ensuring our clients' personal assets remain strictly protected from corporate liabilities. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC