Avoid These Veil-Piercing Mistakes
By: Barry E. Haimo, Esq.
February 24, 2026
Avoid These Veil-Piercing Mistakes
Why people create business entities
People usually incorporate a business in order to insulate themselves in their individual capacities from personal liability exposure of the business (i.e. the creditors of the business). Although there are exceptions and nuances to this rule, that means that a creditor of the business is limited to pursuing the assets of the business. As a result, the creditor, may not pursue claims against the owner in his or her individual capacity, unless an exception or circumstances make such a claim appropriate. Said differently, an unhappy creditor of your business or injured tenant on your rental property cannot come after your personal bank account, car or other precious personal assets. Instead, they are limited to suing the business and recovering insurance proceeds or levying assets of the business to satisfy claims.
What does piercing the corporate “veil” mean?
Piercing the corporate “veil” refers to when a creditor of the business can pursue and collect claims against the owners of the business. In other words, the business structure does not protect its owners. In Florida, it’s very hard to pierce the corporate veil unless the business owners do not respect the formalities of the business. This post discusses how to respect corporate formalities in order to minimize the risks of getting pierced.
The main list of things to avoid doing are as follows:
- Commingling
- In adequate books and records
- Under capitalization
- Failure to file reports
- Failure to have annual meetings
- Failing to sign documents correctly
Commingling
If you have a business, it’s critical that the business operates independently from yourself, your family, and your other businesses. They need to be separate and distinct. That means that you do not want to use your business to pay personal expenses. You do not mix and match your business assets and liabilities with your personal ones. Doing so can result in a court viewing your business as an “alter ego”. In that case, your personal assets could be at risk.
Instead, be sure to open and maintain separate bank accounts and credit cards.
If you need to take money out of your business, do it the right way. Depending on what type of entity and how you are classified for tax purposes, that may be through salary and dividends or distributions. Properly documenting these transactions is critical, especially for reimbursement purposes; otherwise it can be argued that you are merely dipping into your “piggy bank”.
Inadequate Books and records
One of the easiest ways to ensure separateness between yourself and your business (or businesses) is to have separate, organized and maintained books and records. Having a set of books that properly documents transactions is a very important step in ensuring that there is little to no argument to pierce the corporate veil.
Governing documents
It’s important that your businesses have proper documentation. Depending on the type of business, that would include a shareholders agreement and bylaws (C-corp), operating agreement (LLC), partnership agreement, or limited partnership agreement (LP), etc. These documents identify very important parts of the business and further demonstrate the seriousness and separateness of your business.
Loans
An example where this is not entirely clear would be if you lend to your business. It’s entirely acceptable to lend to your business if documented properly. If not documented properly, a loan could be construed as you depositing and withdrawing money regularly (i.e. commingling) in an “alter ego” entity that really isn’t separate and distinct. Instead, document the transaction with a proper promissory note and accompanying legal agreements, like security agreements, potentially a corporate document such as meeting minutes or corporate resolution.
Ultimately, the more documentation you have to support that the business is separate and distinct from yourself and your other businesses, the less ammunition a creditor will have against you personally.
Under capitalization
If you seed fund the business without enough capitalization under the circumstances, it can be construed as being under capitalized. Obviously, the way to avoid this result is to deposit a reasonable amount of money initially upon forming the business. In addition, having insurance is a great way to demonstrate that you are responsibly attempting to mitigate risk to others. For example, if you rent out a real estate property and you seed fund the bank account with $100, you are not reasonably positioned to weather any storms and satisfy any reasonably foreseeable liabilities. If you have insurance, that is a strong statement that you are responsibly mitigating such risk and that the business is not a mere instrumentality.
Failure to file reports
Most states require you to file an annual report to remain current in that state. In Florida, you have to file it by May 1 of each year. In other states, they are due annually but on the anniversary of your filing date. Regardless of when they are due, it’s important that you file them to be compliant with the rules of incorporation in that state. Likewise, it’s important that you file them on time to avoid stiff penalties. For example, in Florida, it costs $138.75 to renew a LLC on time, whereas it’s $537.75 to renew it late. If you are too late, there’s another penalty imposed. At some point, the state will administratively dissolve the business entirely. At that time, you will not have the protections of limited liability that you once sought.
Failure to have annual meetings
Like annual reports, it’s important to meet regularly as a business, but not less than once per year. At that meeting, you can revisit management, elect directors or managers, appoint officers and document key events, decisions or transactions that occurred for that year. You can also document important priorities, decisions, or transactions that may be taking place in the following year, such as raising capital, bringing on partners, adding product or service lines or expanding territories.
Failing to sign documents correctly
When you sign a contract, lease, or other document binding the company, you must clarify that you are signing on behalf of the company, not as an individual.
- The Wrong Way: Signing just “John Smith.”
- The Right Way: “Acme Corp, by John Smith, President.”
If you sign personally without noting your corporate title, you may be accepting personal liability for that specific contract.
Conclusion
Running your business the right way minimizes risks of a creditor of the business piercing the corporate veil to get to your hard-earned personal assets.
