Should My Florida LLC Have More Than One Member? How to Protect Your Company’s Corporate Veil

Posted on October 12, 2023, by Starlett Massey

by Starlett Massey, attorney and founding shareholder of MLG

You may be starting a business and are about to set up an LLC.  Or you may have established your LLC a decade ago.  An LLC offers certain protections.  However, in some circumstances, courts can reach beyond the company’s liability protections — “piercing the corporate veil.”  Due to this risk, business owners should consider whether it is prudent to maintain a single-member LLC or develop a corporate structure with layered LLCs to limit liability.

The Benefits of a Florida Limited Liability Company

A Limited Liability Company (“LLC”) is a common structure used for business entities in Florida.  An LLC, while comprised of one or more members, is an entity distinct from its individual members.^[1]  Often, individual entrepreneurs wish to use an LLC to protect their individual assets from liability associated with their business operations.  Indeed, the very name suggests this principle of “limited liability.”

Individual Liability

First, managers and members are not personally liable for monetary damages to the LLC, its members, or any other person for any statement, vote, decision, or failure to act as a member or manager.^[2]  Likewise, members and managers of an LLC are not personally liable for a debt, obligation, or other liability of the company “solely by reason of being or acting as a member or manager.”^[3]

When Liability Extends

While the formation of an LLC offers certain protections, in certain circumstances, courts can reach beyond the shield of the company’s liability protections. This is called “piercing the corporate veil.”

If a member or manager breaches or fails to perform their duties and the breach or failure of the company is the result of certain misconduct, such as a violation of criminal law, engaging in a transaction with improper personal benefit, or the member or manager commits an act against a third-party in bad faith, with malicious intent, or recklessly, then the member or manager can be held personally liable.^[4]

Piercing the Veil

Historically, case law around the “piercing of the corporate veil” has developed in the context of creditors to a corporation who are allowed to reach beyond the veil of the corporation to the individual shareholders of that corporation. Courts have also applied these elements to LLCs^[5].   A third party who has a valid debt/judgment against a company is often referred to as a “judgment creditor.”  In a corporation, the owners of that company are referred to as shareholders or stockholders; in an LLC, the owners of that company are referred to as members.  If a judgment creditor successfully “pierces the corporate veil” of a company, that creditor may be able to recover on judgments/debts owed by the company from an individual shareholder (or member) of the company.  In order to permit recovery beyond the company and from the individual owner, the judgment creditor must demonstrate these three factors to the court:^[6]

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 shareholder in fact an “alter ego” of the corporation;
2. The corporate form was used fraudulently or for an improper purpose; and
3. The fraudulent or improper use of the corporate form caused injury to the claimant.

Corporations are treated as separate and distinct legal entities from the individual person(s) comprising them.^[7]  The mere fact that an individual is a stockholder, even the only stockholder, is not enough to impose liability on the individual for acts or omissions of the corporation.^[8]  For example, where a doctor – through his company – entered into an agreement with another doctor for payment of office expenses, there was no basis for imposing liability on the individual doctor for failure to pay because the agreement was made between the two doctors’ business, only, and there was no evidence that the doctor himself had agreed to be the guarantor of the business’s agreement.^[9]

Companies Serving Companies

When using an LLC structure, it may be appropriate or beneficial to act in tandem with another LLC, or perhaps have another LLC serve as the member or manager.  By law, any “person” can serve as the member of an LLC, and a “person” includes individuals, corporations, and other corporate entities.^[10]  Developing a corporate structure with layered LLCs may serve to limit a business’s liability.  However, Florida law permits “piercing the corporate veil” when one company is acting as the “alter ego” or a “mere instrumentality” of another.

Satisfying all three elements to pierce the corporate veil is somewhat uncommon.^[11]  For example, to support a finding that one company is the “mere instrumentality” of another, courts have set a high bar, noting that the subsidiary did not have employees, was never funded, never had a bank account, and had no separate existence from its parent company.^[12]  Moreover, the subsidiary and parent company commingled funds in the parent company’s bank account, and all the subsidiary’s expenses were paid by the parent. Likewise, in another case where one company was held to be a “mere instrumentality”, the subsidiary never had a bank account or any assets, never filed tax returns, never conducted any business, and the shareholder conceded the subsidiary had “no purpose.”^[13]

Avoiding Unintentionally Commingling Business

Business owners should be cognizant of the corporate formalities that protect the “corporate veil” that protects the individual shareholders/members of the company.  Generally, the individuals managing each company should ensure that each company maintains its independence from any other related businesses.  Courts have specifically identified certain formalities that should be observed, including:

• Two entities must have a “separate existence” from each other;
• Each entity must be a functioning business that has a purpose, adequate funding to pay its expenses, registers for appropriate business licenses, pays its state, local, and/or federal fees, and pays taxes;
• Owners must keep meticulous records for each of the separate entities, including bylaws, governing documents, or operating agreements, and meeting minutes;
• The businesses must refrain from making undocumented transfers from a shareholder/owner to the company, and vice versa; and
• Each business and individual owner/member must maintain separate bank accounts.

See Florida Statute Section 605.0410 for a full list of records an LLC is required to maintain.

Additional Considerations for Individual Business Owners

For individual entrepreneurs, there are additional considerations in the formation of the business. If a creditor obtains a judgment against a person who is a member of an LLC, the creditor can look to the LLC to satisfy the unpaid amount of the judgment. This is known as a “charging order.”  In Florida, charging orders are applied differently to single-member LLCs as they are to multi-member LLCs. If a Florida LLC has only one member, a court has the power to order a foreclosure sale of the LLC to satisfy the judgment.  If this happens, the purchaser becomes the sole member of the LLC and obtains the prior member’s entire interest in the LLC, including all assets of the company.  Because of this risk, and taken in balance with other factors, business owners should consider whether it is prudent for their situation to maintain a single-member LLC.

Starlett Massey specializes in commercial litigation, corporate transactions, and real estate law. She was recognized as a Rising Star in Business Litigation by peer review through the Florida Super Lawyers from 2013 to 2017 and as a Super Lawyer in Business Litigation in 2022 and 2023. Starlett serves on the Florida Bar Committee for Diversity and Inclusion and is the DEI Chair for the Pinellas County Chapter of the Florida Association for Women Lawyers.

The above is intended to inform firm clients and friends about recent developments in the law, including analysis of statutes and new case decisions. This update should not be construed as legal advice or a legal opinion, and readers should not act upon the information contained herein without seeking the advice of legal counsel.   

[1] Fla. Stat. 605.0108(1).

[2] Fla. Stat. 605.04093(1).

[3] Fla. Stat. 605.0304.

[4] Fla. Stat. 605.04093(1).

[5] Segal v. Forastero, Inc., 322 So. 3d 158, 162-63 (Fla. 3d DCA 2021).

[6] Beltran v. Vincent P. Miraglia, M.D., P.A., 125 So. 3d 855, 858 (Fla. 4th DCA 2013).

[7] Id.

[8] Id.

[9] Id.

[10] Fla. Stat. 605.0102(48).

[11] See, generally, Federated Title Insurers, Inc. v. Ward, 538 So. 2d 890, 891 (Fla. 4th DCA 1989) (“[A] mere instrumentality finding is rare”).

[12] Ocala Breeders’ Sales Co. v. Hialeah, Inc., 735 So. 2d 542 (Fla. 3d DCA 1999).

[13] Sanchez v. Renda Broadcasting Corp., 127 So. 3d 627 (Fla. 5th DCA 2013).