LESSONS IN LIABILITY – Shareholder Liability

This is the second article in’s new series entitled “LESSONS IN LIABLITY – HOW FLORIDA BUSINESSES CAN AVOID COSTLY LAWSUITS.”’s LESSONS IN LIABILITY series is designed to promote’s goal of keeping its clients “in compliance and out of the courtroom.” This article will discuss potential liability to shareholders of Florida corporations. Generally, under Florida law, shareholders have no liability to the corporation, its employees, or its creditors. Obviously, this is the major reason why Florida small business owners incorporate their businesses. However, this protection is not absolute and is often misunderstood by shareholders of Florida’s closely-held corporations. For example, a very common pitfall is personal liability through a personal guaranty signed in connection with a corporation’s account vendor, franchisor or a commercial lease. Additionally, shareholders may be personally liable for certain torts and statutory violations. This article will examine a few of these sources of potential personal liability. PIERCING THE CORPORATE VEIL Shareholders of Florida corporations should be aware that Florida courts recognize a legal doctrine called “piercing the corporate veil.” Under this common law doctrine, Florida courts will disregard the corporate form and impute the liabilities of the corporation as liabilities of the shareholder. While Florida courts are generally reluctant to pierce the corporate veil, some Florida courts have allowed a corporation’s creditor to pierce the corporation veil and tax the corporation’s shareholders with personal responsibly for the corporation’s debts. Notably, creditors have successfully pierced the corporate veil when the creditor has been able to prove the shareholder has used the corporate form for an “improper purpose.” See Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114 (Fla. 1984). More specifically, if a creditor can prove the following bad faith elements, the shareholder may be personally liable for the corporation’s debts: (1) the shareholder dominated and


LESSONS IN LIABILITY – Contract Liability

This is the first article of a new series from entitled “LESSONS IN LIABILITY – HOW FLORIDA BUSINESSES CAN AVOID COSTLY LAWSUITS.” This series is designed to promote’s goal of keeping its clients “in compliance and out of the courtroom.” Even though America’s judicial system is the most advanced in the world, very rarely is a civil lawsuit a smart financial investment for a small to mid-sized business due to the extreme legal costs and time constraints associated with prosecuting or defending a lawsuit. The first area of potential liability every business faces in Florida is contract liability. Contracts are essential to business and form the backbone of any successful business relationship. Regardless of whether agreements are sealed by a handshake or a twenty-page written contract, business agreements allow the parties to operate with a level of certainty regarding what they can expect from their owners, employees, suppliers, customers and anyone else they have a contract with. Unfortunately, contracts also provide the potential for significant liability if they are found to be unenforceable of if you knowingly, or worse, unknowingly breach a contract without understanding the consequences of your actions. Many contracts also include choice of law, venue selection and attorney fee shifting clauses that can substantially limit your ability to litigate a breach of contract claim. These types of clauses can make the potential liability for contract breaches even more severe and, potentially, devastating for a small business. Contracts in General To form a contract in Florida, there needs to be: (1) an offer to do or not do something in the future; (2) consideration provided in exchange for the performance of the other party (consideration must have some sort of value and cannot be a gift); and (3) verbal or written acceptance of the proposed terms