“A general principle of corporate law is that a corporation is a separate legal entity, distinct from the individual persons comprising them, and, absent some basis to pierce the corporate veil, there is no basis for imposing liability for corporate debts and obligations under the individuals.” Beltran v. Vincent P. Miraglia, M.D., P.A., 125 So. 3d 855 (Fla. 4th DCA 2013). “[T]he Florida Supreme Court has imposed a strict standard upon those wishing to pierce the corporate veil.” Seminole Boatyard, inc. v. Christoph, 715 So. 2d 987 (Fla. 4th DCA 1998). Generally, so long as a business entity is operated as a distinct and separate entity for a legitimate business purpose, the plaintiff cannot pierce the corporate veil and render the individual(s) liable for the company’s debts. Peter Mavrick is a Miami business litigation attorney, and represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.
A plaintiff can pierce the corporate veil and hold an individual liable for the debts of the business entity only if it can prove three factors by a preponderance of the evidence. Seminole Boatyard, inc. v. Christoph, 715 So. 2d 987 (Fla. 4th DCA 1998). Those three factors are as follows: “(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 in fact alter egos of the corporation; (2) the corporate form must have been used fraudulently or for an improper purpose; and (3) the fraudulent or improper use of the corporate form caused injury to the claimant.” Gasparini v. Pordomingo, 972 So. 2d 1053 (Fla. 3d DCA 2008). When all three factors are established, the corporate entity may be disregarded to hold a shareholder personally liable for corporate obligations and for the additional purpose of exercising long-arm jurisdiction over a dominating shareholder residing out-of-state. Woods v. Jorgensen, 522 So. 2d 935 (Fla. 1st DCA 1988).
To establish the first factor, “the personal affairs of the shareholder [must] become confused with the business affairs of the corporation. Individual liability under this theory rests in part on the fact that a shareholder has taken it upon himself to disregard the corporate entity.” Solomon v. Betras Plastics, Inc., 550 So. 2d 1182 (Fla. 5th DCA 1989). This determination often focuses on whether the shareholder has maintained the corporation’s separate corporate identity. Lipsig v. Ramlawi, 760 So. 2d 170 (Fla. 3d DCA 2000). “[T]he mere ownership of a corporation by a handful of shareholders is an insufficient reason to pierce the corporate veil and hold shareholders individually liable for a corporate employee’s errors.” Lipsig v. Ramlawi, 760 So. 2d 170 (Fla. 3d DCA 2000). Moreover, “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.” Lipsig v. Ramlawi, 760 So. 2d 170 (Fla. 3d DCA 2003).
To establish the second factor, the plaintiff must show the business entity was formed for an unlawful or improper purpose, including but not limited to, “as a subterfuge to mislead to defraud creditors, to hide assets, [or] to evade the requirements of a statute or some analogous betrayal of trust.” Lipsig v. Ramlawi, 760 So. 2d 170 (Fla. 3d DCA 2000). Conversely, piercing the corporate veil is not warranted where the corporation’s business affairs have been poorly handled, the corporate formalities have not been observed, the shareholders of a closely held corporation did not hold annual meetings, or the shell corporate was used to lease space and subsequently breached the lease by failing to pay rent. Ally v. Naim, 581 So. 2d 961 (Fla. 3d DCA 1991); John Daly Enterprises, LLC v. Hippo Golf Co., Inc., 646 F. Supp. 2d 1347 (S.D. Fla. 2009) (applying Florida law); Schwartz v. Spectratech Ink Co., 568 So. 2d 544 (Fla. 5th DCA 1990); Geigo Props., L.L.P. v. R.J. Gators Real Estate Group, Inc., 849 So. 2d 1109 (Fla. 4th DCA 2003). The third factor requires that, “the demonstrated improper conduct must be the proximate cause of the alleged loss.” Solomon v. Betras Plastics, Inc., 550 So. 2d 1182 (Fla. 5th DCA 1989).
Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.