Single Member LLC Outside Creditor Protection Eroding
In last week's Olmstead v. FTC decision, the Florida Supreme Court ruled that single member limited liability companies (LLCs ) do not provide protection from "outside" creditors. This has been a concern of mine since a similar bankruptcy court ruling in Colorado in 2003, and I have advised clients that North Carolina LLCs could face similar attack.
LLCs are great entities for providing asset protection for their owners against "inside" creditors, such as a tenant injured on real property owned by the LLC. Multi-member LLCs also protect a member's interest from outside creditors such as the holders of unrelated judgments. This Facebook post from Florida attorney Ed Arista offers a nice synopsis of LLCs and asset protection.
It is possible to create a multi-member LLC (with charging order protection) that is still taxed like a single member LLC.
Is there another way can a member of a single member Florida LLC be protected from liability? There are obvious benefits an LLP or LLLP but how does that look to the lurking creditor? Will it be considered a fraudulent change of organization under Florida law?
RESPONSE: To have an LLP or LLLP you must have a partner. I you have another person involved you could have a multi-member LLC with the accompanying protections. A multi-member LLC can also be formed with a grantor trust as the other member.