Business Owner Personal Liability for Company Debt, Florida

Can a Business Owner Be Personally Liable for Company Debt in Florida?

Usually, no. If the company is a separate legal entity and you did not personally agree to pay its bill, the company’s debt generally stays with the company. The exceptions depend on how the business is organized and what you signed or did.

This page explains the rules by business type, plus the common exceptions. It is written for owners, partners and family members who are dealing with a supplier bill, a lease claim or a lawsuit against the company.

Short Answer: Your Business Structure Sets the Starting Point

Your personal exposure starts with how the business is organized. An LLC or corporation generally owes its own debts. A sole proprietorship or general partnership works differently, and the owner can be personally responsible.

Two questions decide most cases. First, what kind of entity is the business? Second, did you personally promise to pay the debt?

Ayala Law PA focuses on business and contract disputes, including shareholder and partnership disputes and construction litigation. Eduardo A. Maura is the responsible lawyer for this page. The firm’s only office is in Tampa, at 1646 W Snow Ave. The firm handles disputes for businesses in Florida courts and arbitration, and its work is directed at businesses in Tampa, Hillsborough County and the Tampa Bay area. For the broader practice, see our business litigation overview.

Sole Proprietors and General Partners: Unlimited Personal Exposure

A sole proprietor or general partner is generally personally responsible for the business’s debts. Partnerships work the same way for their partners under Florida’s partnership statute.

Under § 620.8306, except as otherwise provided in subsections (2) and (3), all partners are liable jointly and severally for all obligations of the partnership. That rule applies unless a claimant agreed otherwise or the law provides otherwise. Joint and several liability means a creditor can pursue any one partner for the full amount, not just that partner’s share.

A partner who joins an existing partnership has some protection. Under the same statute, that person is not personally liable for partnership obligations incurred before joining. Pull the partnership agreement and the dates each partner joined. Those dates can matter when a creditor is looking at older debts.

Are LLC Members Personally Liable for LLC Debts?

Generally no. Under § 605.0304, a company’s debt is solely the company’s. A member or manager is not personally liable for it just because of that role. This protection continues even after the company is dissolved, or closed.

The same statute says that failing to follow company formalities is not, by itself, a ground for holding a member or manager liable. Missed paperwork alone does not move a company debt onto you.

This protection covers any debt, obligation, or other liability of the LLC. Vendor balances, equipment invoices and lease payments owed by the LLC are examples. It does not cover a debt you personally agreed to pay, which is covered below.

Are Owners Liable for Corporate Debts?

Generally no. Owning shares alone does not make you responsible for a corporation’s debts. Your usual financial exposure is the money you put into the company.

Courts can reach shareholders in narrow cases, usually through veil piercing, which is discussed later in this article. That is an exception, not the starting rule.

Fights between co-owners are a separate issue. A dispute over how company money was handled between shareholders is a different claim from a creditor’s demand. It can need a different response, so keep the two problems separate when you review your documents.

Can Directors Be Held Personally Liable for Company Debts?

Generally no. A title alone does not make a director personally responsible for company debts. Under § 607.0831, a director is not personally liable for monetary damages from decisions made as a director. Fla. Stat. § 607.0831 reads: “(1) A director is not personally liable for monetary damages to the corporation or any other person for any statement, vote, decision to take or not to take action, or any failure to take any action, as a director, unless: (a) The director breached or failed to perform his or her duties as a director; and.” The exception applies only if the director breached a duty and the breach falls into a listed category.

Those categories include a violation of criminal law, unless the director had reasonable cause to believe his or her conduct was lawful or had no reasonable cause to believe his or her conduct was unlawful, and an improper personal benefit. They also include certain willful misconduct or reckless conduct, depending on who brings the claim.

A different rule applies to unlawful payouts. Under § 607.0834, a director who votes for or assents to an unlawful distribution can be personally liable to the corporation for the excess amount if it is established that the director did not perform his or her duties in compliance with s. 607.0830. That section requires a director to act in good faith and in a manner he or she reasonably believes to be in the best interests of the corporation, and, when becoming informed in connection with a decisionmaking function or devoting attention to an oversight function, to act with the care an ordinary prudent person in a like position would reasonably believe appropriate under similar circumstances.

How a Personal Promise to Pay Changes the Answer

A signed personal promise to pay the company’s debt can make you responsible for that debt. Landlords, lenders, equipment lessors and suppliers often ask owners to sign one before they extend credit. The promise is your own, even though it backs the company’s obligation.

Florida requires certain promises to be in writing. Under § 725.01, no action may be brought on a special promise to answer for another person’s debt unless the promise, or a note of it, is in writing and signed by the party to be charged. Fla. Stat. § 725.01 reads: “unless the agreement or promise upon which such action shall be brought, or some note or memorandum thereof shall be in writing and signed by the party to be charged therewith or by some other person by her or him thereunto lawfully authorized.” In plain terms, a creditor usually needs a signed writing to hold you to a promise like that.

Read every document with your name in a signature block. Check the amount, whether the promise is limited or open-ended, and what it says about the company’s own obligation.

In Ham v. Portfolio Recovery Associates, the Florida Supreme Court explained that an account stated claim requires an agreement fixing the amount due and a promise to pay it.

Florida also treats written and unwritten contracts differently for filing deadlines under § 95.11.

When Courts May Look Past the Entity: Veil Piercing

Courts look past a company only when the entity has been misused. This “showing of improper conduct” requires proof that “the corporation was actually organized or used to mislead creditors or to perpetrate a fraud upon them.” It held that veil piercing requires proof of improper conduct, meaning the corporation was used to mislead creditors or to perpetrate a fraud on them.

The same opinion lays out a three-part test. The owner must have dominated the company so it had no independent existence. The corporate form must have been used fraudulently or for an improper purpose. And the claimant must have been injured as a result.

Practical point: mixed bank accounts and personal use of company money become evidence on the first two parts of this test. Keep business and personal money separate. Document owner loans and draws so the paper trail matches what happened.

Special Liability Situations Business Owners Should Know About

Sales tax, fraud and asset transfers are the three areas that catch owners most often.

Sales tax. Under § 212.07, a dealer must collect sales tax from the buyer. Fla. Stat. § 212.07 reads: “Except as otherwise specifically provided, any dealer who neglects, fails, or refuses to collect the tax herein provided upon any, every, and all retail sales made by the dealer or the dealer’s agents or employees of tangible personal property or services which are subject to the tax imposed by this chapter shall be liable for and pay the tax himself or herself.” The tax is a debt from the buyer to the dealer until it is paid. A dealer who fails to collect the tax is liable for it and must pay it. Fla. Stat. § 212.07 reads: “Except as otherwise specifically provided, any dealer who neglects, fails, or refuses to collect the tax herein provided upon any, every, and all retail sales made by the dealer or the dealer’s agents or employees of tangible personal property or services which are subject to the tax imposed by this chapter shall be liable for and pay the tax himself or herself.” Check whether sales tax was collected and remitted, especially when company cash runs short.

Fraud. Under Florida case law, a promise of future action can be fraudulent if the promisor had no intention of performing it, or a positive intention not to perform. The Third District recognized this in Frutafino, S.A.S. v. Dole Chile, S.A.. A person who makes such a promise to win a contract can face claims for their own conduct.

Under § 726.105, a transfer is fraudulent as to a creditor if it is made with actual intent to hinder, delay or defraud any creditor. It is also fraudulent if the debtor made it without receiving a reasonably equivalent value in exchange and either (1) was engaged or about to engage in a business for which its remaining assets were unreasonably small, or (2) intended to incur, or reasonably should have believed it would incur, debts beyond its ability to pay as they became due. The statute lists factors a court may weigh. They include whether the transfer went to an insider and whether the debtor had been sued or threatened with suit before the transfer.

Moving company money or property to family or friends after a creditor has threatened suit is a fact that can count against you.

Frequently Asked Questions and Next Steps