Beware of the Single-Member Limited Liability Company

by | Jan 15, 2020

 

April 29, 2013

By: Barry E. Haimo, Esq.

Beware of the Single-Member Limited Liability Company (LLC)

 

Limited Liability Company (LLC) interests are characterized as personal property under Florida Law. Everyone that forms a business entity to limit their personal liability does so to separate themselves from creditors of the business, or “inside creditors”. Unfortunately, most people fail to realize that a creditor of an owner (known as a “member”) of a single-member LLC, such as yourself, can force you to sell your business, or foreclose your interest, to satisfy a judgment and there’s little you can do about it. Period. Here’s an excerpt of Florida’s  pertinent statutory language (emphasis added).

608.433 Right of assignee to become member.—

(6)   In the case of a limited liability company having only one member, if a judgment creditor of a member or member’s assignee establishes to the satisfaction of a court of competent jurisdiction that distributions under a charging order will not satisfy the judgment within a reasonable time, a charging order is not the sole and exclusive remedy by which the judgment creditor may satisfy the judgment against a judgment debtor who is the sole member of a limited liability company or the assignee of the sole member, and upon such showing, the court may order the sale of that interest in the limited liability company pursuant to a foreclosure sale. A judgment creditor may make a showing to the court that distributions under a charging order will not satisfy the judgment within a reasonable time at any time after the entry of the judgment and may do so at the same time that the judgment creditor applies for the entry of a charging order.

(7) In the case of a limited liability company having only one member, if the court orders foreclosure sale of a judgment debtor’s interest in the limited liability company or of a charging order lien against the sole member of the limited liability company pursuant to subsection (6):

(a) The purchaser at the court-ordered foreclosure sale obtains the member’s entire limited liability company interest, not merely the rights of an assignee;

(b) The purchaser at the sale becomes the member of the limited liability company; and

(c) The person whose limited liability company interest is sold pursuant to the foreclosure sale or is the subject of the foreclosed charging order ceases to be a member of the limited liability company.

So What’s The Solution?

You take advantage of assets that are exempt from creditors. You can also structure your company as a multi-member LLC, which enjoys considerably more asset protection benefits. I recommend not relying on Florida’s statute and investing in a strong operating agreement to ensure that you and your partners rights, obligations are   clearly expressed. I cannot over stress the importance of doing this right in the beginning.  Here’s a great article boiling down the reasons to invest in an operating agreement. The statute is merely a foundation for rights, responsibilities and obligations of the members of the entity.

Author:
Barry E. Haimo, Esq.
Haimo Law
Strategic Planning With Purpose
Email: barry@haimolaw.com
LinkedIn: http://www.linkedin.com/in/bhaimo
Google+: https://plus.google.com/u/0/+BarryEHaimoLaw/posts
YouTube: http://www.youtube.com/user/haimolawtv

YOU ARE NOT OUR CLIENT UNLESS WE EXECUTE A WRITTEN AGREEMENT TO THAT EFFECT. MOREOVER, THE INFORMATION CONTAINED HEREIN IS INTENDED FOR INFORMATIONAL PURPOSES ONLY. EACH SITUATION IS HIGHLY FACT SPECIFIC AND EXCEPTIONS OFTEN EXIST TO GENERAL RULES. DO NOT RELY ON THIS INFORMATION, AS A CONSULTATION TO UNDERSTAND THE FACTS AND THE CLIENT’S NEEDS AND GOALS IS NECESSARY. ULTIMATELY WE MUST BE RETAINED TO PROVIDE LEGAL ADVICE AND REPRESENTATION. THIS INFORMATION IS PROVIDED AS A COURTESY AND, ACCORDINGLY, DOES NOT CONSTITUTE LEGAL ADVICE.

CALL NOW