Limited liability companies (LLC) are often used by Florida residents for estate planning and asset protection purposes. Do single-member LLCs enjoy the same level of protection against creditors granted to multi-member LLCs in Florida? Read on to discover.
Is a Single-Member LLC Shielded Against Creditors in Florida? – As Provided by Law
Since 2011, multi-member LLCs and single-member LLCs do not enjoy the same level of limited liability in Florida.
In the year prior, the Florida Supreme Court decision in the “Olmstead vs. Federal Trade Commission” case changed the current viewpoint of state courts on limited liability.
Before 2010, no membership interest in a single-member LLC could be attached by judgments of the sole member’s creditors. In such cases, the only available remedy for a judgment creditor was a charging order against that member’s interest in the business.
Ultimately, all the creditors would collect would be distributions from the LLC – only and if made. Currently, a charging order is the only remedy available against multi-member LLCs while sole-member LLCs do not enjoy the same privilege.
Explaining the Olmstead Patch
Since 2010, Florida’s Supreme Court decision on the Olmstead case resulted in the possibility of judgment creditors seizing control of a single-member LLC by attaching a judgment against the sole member’s interest to fulfill unpaid debts.
On June 11, 2011, the Governor signed the “Olmstead Patch,” which amended Section 608.433 of the Florida Limited Liability Company Act.
Florida Statutes §608.433 (4) specifies that “on application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the limited liability company interest of the member with payment of the unsatisfied amount of the judgment with interest.”
Single-Member LLC Asset Protection in Florida – Alternative Solutions
Considering assets held in a single-member LLC are not out of creditors’ reach, the best approach is not to rely on this type of business structure for asset protection. Instead, a multi-member LLC strategically structured for asset protection offers an ideal solution.
If you own a single-member LLC, it is possible to convert this entity into a multi-member LLC. For example, the sole member can gift an interest share to a family member (e.g., spouse, child, etc.) or even transfer part of the interest to a Florida trust.
Depending on the purpose, it is possible to set up an irrevocable trust for the benefit of the sole member’s children and transfer a percentage of the LLC’s ownership to the trust. Hence, it becomes a multi-member LLC and an estate planning tool.
Another solution is to convert the single-member LLC into a limited liability limited partnership (LLLP). Considered a relatively new type of business entity, LLLPs have at least one general partner and at least one limited partner – all protected from business liabilities and debts.
If the sole member of an LLC is willing to transfer the business entity to another state to preserve its original status, it is possible to transfer the company to a state with LLC laws favoring single-member LLCs.
For example, one can convert a single-member LLC formed in Florida to a Texas single-member LLC. Other states with similar legislation include Delaware, Nevada, and Wyoming.
Do You Need Optimized Asset Protection in Florida? – Immediately Contact Jurado & Associates, P.A.
A well-versed attorney from Jurado & Associates, P.A. is willing to help you find a strategy tailored to your case. Call us today at (305) 921-0976 or email Romy@juradolawfirm.com for expert legal guidance.