To understand “reverse piercing the corporate veil,” we need to understand “piercing the corporate veil.” “Piercing the corporate veil” is a legal term. It is used to describe a situation where a court disregards the separation between a corporation, and its owners or shareholders. This allows the court to use the owners’ personal assets to satisfy the corporation’s debts, or legal obligations.
“Reverse piercing the corporate veil” is a less common legal concept. This refers to a situation where a court disregards the separation between a shareholder or owner’s personal assets, as well as a wholly-owned corporation. In other words, the court may allow the use of the corporation’s assets to satisfy the shareholder or owner’s personal debts, or legal obligations.
This means that, in piercing the corporate veil, efforts are focused on trying to get the shareholders or owners’ assets to satisfy the corporation’s obligations. But, in reverse piercing, efforts are focused on trying to get the corporation’s assets, in order to satisfy the owner’s obligations.
Instances of Reverse Piercing
Reverse piercing can occur in situations where the shareholder or owner is using the corporation as a mere instrument for their personal affairs. It can also occur when the corporation is under their complete control and domination. The exact circumstances vary, depending on jurisdiction and certain facts relating to the case.
The most typical example of reverse piercing occurs in the context of taxes. The IRS may have a tax debt against a tax payer, and, to satisfy that tax lien, the IRS may try to reverse pierce the tax payer’s assets in a corporation.
Reverse Piercing in Florida
In Florida you “reverse when the controlling party uses the controlled entity to hide assets … to avoid the pre-existing liability of the controlling party.” Braswell v. Ryan Invs., Ltd., 989 So. 2d 38, 40 (Fla. 3d DCA 2008).
However, Florida has strong protections against piercing the corporate veil, whether reverse or otherwise. “[C]ourts will look through the screen of corporate entity to the individuals who compose it [only] in cases in which the corporation was a mere device, or sham to accomplish some ulterior purpose, or is a mere instrumentality or agent of another corporation or individual owning all or most of its stock. Or where the purpose is to evade some statute, or to accomplish some fraud or illegal purpose.” Dania Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114, 1117 (Fla. 1984).
In short, if your corporation is not a mere “sham” for improper or illegal purposes, you should feel safe in Florida. It would be very hard for a creditor to pierce the corporate veil.
For more information on business law, contact one of our attorneys at 305-570-2208. You can also email trial attorney Eduardo A.Maura at eduardo@ayalalawpa.com.
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