Business ownership is often shared, but this isn’t always the case — especially when an entrepreneur has a distinctly unique vision. There are occasions when a formal business structure, such as a Limited Liability Company (LLC), is owned by one individual.
Simply setting up a formal business structure is often enough to provide liability protection for the owner. They usually cannot be sued for their personal property should the company face legal challenges. Nonetheless, this is not always the case, and “piercing the corporate veil” can result in a sole owner being held personally liable for the actions of the business. What does it mean to pierce the corporate veil?
Essentially, piercing the corporate veil means that the liability protection that is afforded to some business structures ceases to exist. Typically, this occurs when the business entity is the “alter ego” of the owner, and there is a significant commingling of business and personal assets and spending.
For a sole owner to retain the advantages of liability protection, personal dealings and business dealings must always be kept separate. All business transactions must be clearly documented, recorded, and reported.
The sole owner must keep paperwork in order and file tax returns, business income reports, and other relevant information on time each year. When a sole owner fails to do this, assets can become commingled. When business assets and personal assets are not clearly separated, then an owner pierces the corporate veil and risks losing the liability protections that a formal business structure offers.
For example, if a business owner makes purchases from their personal bank accounts or credit cards and then reimburses themselves without properly documenting the transactions, the line between personal assets and business assets becomes blurred.
As a sole business owner, having the right legal guidance behind you is essential. We help business owners ensure that they are protected and acting within the laws of Florida. Call us today to arrange a consultation.
