HOW LIMITED IS MY PERSONAL LIABILITY FOR BUSINESS DEBTS AND LIABILITIES?
If a creditor of the business is unable (or believes it will be unable) to collect its claims against the business, it may attempt to pierce the corporate veil. The piercing the corporate veil will eliminate the liability protection given to the business owners and officers and expose them personally. The law generally states that the corporate veil will not be pierced absent a showing of improper conduct.
There are three (3) major factors that are relevant in most cases to "piercing the corporate veil".There are three (3) major factors that are relevant in most cases to "piercing the corporate veil" and must be proven by the creditor/plaintiff:
1. the business entity was an "alter ego" to the owners/officers as they controlled the entity to such an extent there was no independent existence from their personal assets/life;
2. the business entity was formed for fraudulently or for improper purpose; and
3. that fraudulent or improper use of corporate form caused injury to claimant.
Most people do not run into the "piercing the corporate veil" problem, but often...Most people do not run into the "piercing the corporate veil" problem, but often with financial difficulties or "gray area" opportunities the business changes. However, more commonly, honest business owners abuse the independent existence of the business entity and create the "alter ego" status. This is most commonly abused by paying personal debts through the business. It starts as simple as paying the landscaper or utilities bills for the house from the business.
Others form their business entity after operating their business and when a situation arises that may result in a claim or lawsuit. The courts do not protect the corporate veil and limited liability when people form a business entity as fronts to protect personal assets.
To protect your personal assets from your businessTo protect your personal assets from your business, you should only form a business entity to start or continue a true business entity, and second an owner/officer should never mix their personal assets and liabilities with the business unless they are following legal or tax advise or other legitimate basis under Florida law.