Limited liability companies (LLCs) are often used for asset protection purposes. As its name suggests, this business structure protects individual members against the company’s liabilities and vice-versa. Are Florida LLCs shielded against lawsuits? Read on to find out.
Are Florida LLCs Shielded Against Lawsuits? – The Verdict
Forming an LLC with the Florida Department of State (Division of Corporations) is not a complex process. Hence, many state residents use LLCs to protect personal assets and avoid probate upon death.
Despite its solid asset protection features, Florida LLCs do not shield a member from lawsuits. Several factors involved in the LLC’s setup and administration may jeopardize the high level of protection granted to an entity.
Are Florida LLCs Shielded Against Lawsuits? – Taking a Closer Look
The member of an LLC is not liable for a lawsuit brought against the business. Conversely, an LLC is not liable for a lawsuit brought against its members. Ultimately, an LLC is a separate entity from its owners in Florida.
While an LLC provides additional legal protection in the event a creditor seeks a judgment or lien against one of its members, it is not shielded against lawsuits brought directly against it.
If an LLC incurs debt, the company’s creditors can seek a judgment directly against the entity. The difference is no creditors are allowed to collect from the members of the LLC to fulfill unpaid obligations.
Limited Liability Protection Florida – Single-Member LLCs vs. Multi-Member LLCs
If you are seeking legal protection for personal assets, the best approach is to rely on a multi-member LLC. Compared to multi-member entities, single-member LLCs offer a lower level of asset protection in Florida.
For example, let’s say a creditor seeks a judgment against a Florida multi-member LLC to obtain a charging order to prioritize the amount owed to creditors before any distribution of income or profit.
If the creditor succeeds to obtain this charging order, it is not possible to force the members of the LLC to make these payments, as multiple members are responsible for the LLC’s management.
Conversely, if the same creditor manages to obtain a similar charging order against a single-member LLC, the situation may result in a different outcome. A single-member LLC owner who fails to make a timely payment is exposed to risk.
In such cases, the creditor can file a petition in court to force a business foreclosure sale and seek full control of the owner’s interest in the LLC to receive the owed amount.
Avoiding Costly Mistakes – Good Practices to Protect Limited Liability in Florida
Purchasing insurance coverage for an LLC is an often-underrated aspect of asset protection strategies. With a proper insurance policy in place, an LLC can pay damages and avoid severe legal consequences in unexpected incidents.
Another common mistake is failing to keep updated records. Even though LLCs do not have the same formalities as corporations, it is fundamental to keep a proper record sheet in the event of a lawsuit.
Make sure to have all the required paperwork organized and stored at the entity’s business address, including its certificate of formation, operating agreement, and any annual or biennial reports required by state law.
Additional documentation includes the LLC’s tax returns at the state and local levels for the last three years. Most importantly, it is crucial to never commingle personal assets with LLC assets.
Immediately Contact Jurado & Associates, P.A. for Optimized Asset Protection Strategies
Waste no time – work with an expert asset protection attorney from Jurado & Associates, P.A. by calling (305) 921-0976 or emailing Romy@juradolawfirm.com for an individual assessment.