Limited Liability Companies (LLCs) are a popular entity choice for seeking to protect personal assets while enjoying operational flexibility. However, the degree of protection an LLC offers can vary significantly depending on whether it is structured as a single-member LLC (SMLLC) or a multi-member LLC (MMLLC). It is important to understand these differences to ensure you and your assets are fully protected from creditors.
A multi-member LLC—comprising two or more owners— has significant asset protection benefits under Florida law. In the event that a member faces personal creditors, these creditors are typically limited to obtaining a charging order. This legal mechanism entitles the creditor to the debtor-member's share of distributions from the LLC but does not grant them management rights or access to the company's underlying assets. Additionally, it is important to have a well written operating agreement to ensure there are no mandatory distributions being made, thereby safeguarding the company's operations and assets from creditor interference.
Conversely, a single-member LLC in Florida does not enjoy the same level of protection. The landmark Olmstead v. FTC case highlighted that creditors are not restricted to charging orders and may pursue more aggressive remedies, such as foreclosure on the member's interest. This means a creditor could potentially seize control of the LLC's assets to satisfy outstanding debts, posing a significant risk to the sole owner's business interests.
To mitigate these vulnerabilities, owners of SMLLCs might consider restructuring their business to include additional members, thereby transitioning to an MMLLC. This could involve adding a trusted family member, friend, or even another business entity as a member. By doing so, the LLC can benefit from the enhanced asset protection provisions afforded to multi-member entities under Florida law.
In conclusion, while both single-member and multi-member LLCs offer limited liability protection, the extent of that protection varies in Florida. You business structure should be carefully assessed to ensure protection.
Contact us today to help ensure all your assets are protected and safe from creditors!