5 Strategies for Minimizing Personal Liability as a Florida Business Owner
How Florida Business Owners Can Maintain Their Personal Liability Protections
Florida business owners need to be sure that they’re taking the necessary steps to protect themselves from being held personally liable for their company’s debts and obligations. This is true even if you’ve formed a limited liability company (LLC) or a corporation. Without the right strategies in place, your personal assets could be at risk. This post will review the key steps that you can take to minimize your personal liability as the owner of a Florida LLC or corporation.
1. Choose the Right Business Structure
One of the biggest and most consequential choices that you’ll make when starting out will be selecting the structure for your Florida business. Generally, we recommend that our clients start off with an LLC because it offers personal liability protections without forcing the business’s owners (known as the LLC’s members) to follow the same strict corporate formalities that are required of Florida corporations (see Fla. Stat. 605.0304).
2. Separate Business and Personal Assets and Expenses
Once your Florida LLC or corporation has been formed and registered with the State of Florida’s Division of Corporations, then it’s essential that you diligently avoid mixing or commingling your personal assets with those belonging to your company and vice versa. This requires having a separate business bank account and associated credit cards for your Florida LLC or Corporation. As an added benefit, this will also help streamline accounting and tax preparation matters.
3. Maintain Your Company’s Corporate Veil
It’s important to be aware of the different causes that can lead to the loss of your Florida LLC or corporation’s liability protections, also known as piercing the corporate veil. If this happens, then the business’s owners can be held personally liable for their company’s debts and obligations. Preventing this means that you absolutely must treat your business as a separate entity in every way. Otherwise, it could be considered to be an “alter ego” rather than a separate entity from its owners.
In Florida, a company can typically have its corporate veil pierced if three specific criteria are met:
- The member (LLC) or shareholder (corporation) controlled the business to such an extent that the two are no longer legally distinct, which means that it can be considered to be a mere instrumentality or alter ego of the individual in question.
- The Florida entity was used for fraudulent or improper purposes, such as shielding an individual’s personal assets from creditors.
- The Florida entity’s fraudulent or improper actions caused direct damage to a claimant or creditor.
Source: Seminole Boatyard, Inc. v. Christoph, 715 So.2d 987 (Fla. 4th DCA 1998).
4. Beware of Alter Ego Doctrine
To prevent falling under the scope of “alter ego doctrine,” make sure that your Florida LLC or corporation has its own assets, records, and contracts. Don’t use company funds for personal expenses and don’t represent yourself as your Florida business during personal transactions. For example, Florida courts were able to pierce the corporate veil where the corporation was found to be a mere instrument of shareholders who used corporate funds for personal expenses and did not maintain their business’s corporate records.
5. Work with a Florida Corporate Attorney
The best way to ensure that you’re taking all of the necessary steps to protect yourself while owning a Florida LLC or corporation is to work with an experienced Florida corporate attorney. Don’t underestimate the countless ways the right lawyer can help, whether that means drafting your newly formed LLC’s operating agreement or assisting with a comprehensive asset protection plan. They can also help you navigate any legal challenges that you and your business might encounter down the line.
If you’re looking to start a Florida LLC to protect your personal assets or for strategies to reinforce your personal liability protections, contact our corporate law offices today by calling (727) 279-5037 or by scheduling a time through our online calendar.
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