When it comes to asset protection in Florida, structuring your business correctly is crucial. The debate between single-member and multi-member LLCs often surfaces, especially in light of significant case law that has shaped how asset protection is viewed. In this post, we’ll delve into why having more than one member in your LLC can provide enhanced asset protection, backed by important legal precedents and practical advice.
Understanding LLCs and Asset Protection
A Limited Liability Company (LLC) is a popular business structure due to its flexibility and liability protection. In Florida, an LLC can be either a single-member LLC, owned by one person, or a multi-member LLC, owned by two or more members. While both types offer liability protection, the degree of protection can vary.
The Impact of Olmstead v. FTC
In 2010, the Florida Supreme Court case Olmstead v. FTC significantly impacted the asset protection landscape for single-member LLCs. The court ruled that creditors could pursue the foreclosure of a debtor’s entire interest in a single-member LLC, thereby gaining access to the LLC’s assets directly. This ruling highlighted a vulnerability in single-member LLCs’ asset protection.
Statutory Amendments and Their Implications
In response to Olmstead, Florida amended its LLC statutes, reinforcing that a charging order is the exclusive remedy for creditors of both single-member and multi-member LLCs. However, the protection for single-member LLCs remains less robust compared to multi-member LLCs. Creditors can still seek foreclosure in certain circumstances, making asset protection for single-member LLCs less reliable.
Why Multi-Member LLCs Offer Stronger Protection
- Robust Charging Order Protection: Multi-member LLCs benefit from stronger charging order protections. Creditors are typically limited to receiving distributions from the debtor’s interest, without interfering in the LLC’s operations or accessing its assets directly.
- Complexity for Creditors: Creditors are often deterred by the complexity of pursuing claims against multi-member LLCs. The presence of multiple members makes it challenging to enforce foreclosure or other remedies.
- Operational Reality: Adding a second member, such as a trusted family member or a separate legal entity, can significantly enhance the asset protection features of your LLC.
Strategic Planning for Enhanced Asset Protection
- Multiple Entities: Consider using multiple entities to segregate and protect assets. For example, a single-member LLC can own certain assets, while a multi-member LLC holds others.
- Legal and Financial Advice: Consult with an attorney specializing in asset protection and a financial advisor to tailor your business structure to maximize protection while complying with Florida law.
Conclusion
While single-member LLCs offer some level of asset protection, they are not as robust as multi-member LLCs, especially in light of cases like Olmstead v. FTC. For stronger asset protection, consider structuring your LLC with multiple members. Always seek professional advice to ensure your assets are well-protected and your business structure is optimized for your specific needs.
Lori Vella is an Estate Planning and Business Attorney. She works virtually throughout Florida and New York, but has her home office in Tampa, Florida. She is mom to a little boy which ignited the passion for helping other families. She and her son enjoy car rides, playgrounds and taking mini-adventures. They also have an organic garden that surprisingly yields vegetables. Lori considers herself well-versed in Seinfeld and welcomes any trivia!
Disclaimer: The Law Office of Lori Vella’s website contains general information directed to Florida residents. This firm does not intend to give legal advice through its pages and/or blog. If you need legal advice, we encourage you to find an attorney licensed in your state. This language on this website does not create an attorney-client relationship between you and this firm.