Newsletter September ’10 – Changes in Florida Law for Single Member LLCs
Changes in Florida Law for Single Member LLCs
I have received quite a few queries about a recent change in Florida law regarding single-member LLCs by the decision of Olmstead v. Federal Trade Commission, SC08-1009 (Fla. June 24, 2010). This Florida Supreme Court advisory opinion has significantly changed the asset protection of a single member limited liability company under Florida law. Previously, a judgment creditor could only obtain a “charging lien” against the LLC membership interest of the debtor. Basically, the creditor would be entitled to receive distributions from the LLC, but not participate in the management. As the creditor could not force any distributions/ funds out of the LLC to itself, the debtor controlling a single member LLC could engage the creditor in a waiting game, particularly where non-liquid assets were held by the LLC. For this reason, single-member LLCs have been used as asset protection vehicles. The Olmstead decision, however, now provides that, with respect to a single member LLC, a judgment creditor may levy on the LLC membership interest and obtain full title to the membership interest, meaning the right to own and control the LLC.
For businesses operating as a single member LLC, the Olmstead decision may not necessitate any structural changes because often the business assets will be subject to liens in favor of trade creditors or business lenders anyway. However, for those utilizing a single member LLC for the purpose of protecting assets placed into the LLC, that strategy must now be re-evaluated. One final point to remember is that the Olmstead decision does not broaden the ability of a creditor to “pierce the veil” and reach the individual assets of an LLC member.
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