Currently, the are more than 2 million small businesses established in Florida, many of them structured as limited liability companies (LLCs). These companies are fundamental for job creation, as they employ and generate income for millions of workers.
Although LLC owners indeed have limited liability, there are cases in which a court may decide to pierce a business’s “corporate veil”. However, it is possible to pierce a single-member LLC in Florida? Keep reading to find out.
Single-Member Limited Liability Company (LLC)
Many business experts consider LLCs to be hybrid businesses, as they combine the tax advantages and flexibility of partnerships with the level of liability protection usually granted to corporations.
The owners of an LLC are usually referred to as “members.” When a single individual or even a single business entity owns an LLC, it is referred to as a single-member LLC.
Both multi-member and single-member LLCs are protected from liabilities associated with the business. Hence, if a creditor files a lawsuit against the company, the owner(s) will not be held personally accountable.
This level of asset protection is valuable in situations when a creditor tries to collect an entrepreneur’s personal property to compensate for unpaid debt. Single-member LLCs also protect the business’s assets, as judgments placed against the owner will not affect property named in the company’s ownership.
For tax purposes, the Internal Revenue Service (IRS) provides that single-member LLCs can be treated as corporations, partnerships, or as “disregarded entities.”
When a single-member LLC is not treated as a corporation, which makes the LLC a “disregarded entity,” the company’s profits and losses will pass through it to its owner’s federal tax return.
Piercing the Corporate Veil – Explaining the Term
The term “piercing the corporate veil” refers to a case when a court decides to put aside limited liability and hold the owners, shareholders, or directors personally liable for a company’s liabilities.
Generally, courts in Florida tend to have a presumption against piercing the corporate veil. Hence, the only way to convince a court to do so is to provide unquestionable evidence of serious misconduct incurred by a business (specifically, a limited liability company).
Piercing the Corporate Veil of a Single-Member LLC in Florida – The Alter Ego Element
When pleading a court to pierce the corporate veil of a single-member LLC, the plaintiff must provide evidence that the business structure was used as an alter ego of its owners.
Additionally, the plaintiff must prove that the solo owner controls the business to such an extent that the LLC is just an alter-ego.
Another possible situation includes the “mere instrumentality theory,” which materializes when a parent business – in this case, a single-member LLC – owns a subsidiary company that acts as a mere instrumentality of the parent company.
Can a Single Member LLC in Florida be Pierced? – A Realistic Overview
Indeed, it is possible to pierce a single-member LLC in Florida. Nevertheless, doing so depends on a set of circumstances, especially the specifics of each company.
Until the late ’70s, most companies in the United States were corporations. Then, the concept of creating a limited liability company was to design a type of partnership with extra liability protection.
Hence, depending on the case, it may be problematic to operate a limited liability company with only one owner. Typically, the main problem is separating the company’s assets from personal assets, and that is where most single-member LLC owners fail.
Accordingly, various circumstances may constitute legal grounds for piercing the corporate veil of a single-member LLC, such as:
- Commingling personal and business affairs
- Failing to keep the entities separated
- Treating the business’s assets as personal property
- Failing to maintain the separation between records of distinct entities
- Establishing a single-member LLC to transfer the existing liability of another entity
- Using the same workforce and the same business location in separate entities
- Failing to provide capital influx or incurring the total absence of business’s assets
However, although it is possible to pierce a single-member LLC in Florida, it rarely occurs. In most situations, it is hard to demonstrate evidence in court that the wrongdoings of a company are sufficient to pierce its corporate veil.
for example, demonstrating that the owner of a single-member LLC failed to maintain certain business formalities is not a sufficient argument to convince a court to pierce its corporate veil.
LLC Liability Protection in Florida – Work with Jurado and Farshchian, P.L.
As it is plain to see, piercing the corporate veil of a business in Florida requires a fact-specific analysis of the specific circumstances of each case. Call Attorney Romy B. Jurado today at (305) 921-0440 or send an email to Romy@jflawfirm.com to schedule a consultation.