One is the Loneliest Number: Does Florida Offer Less or No Asset Protection to Single Member LLC’s?
Updated: May 17, 2019
Everybody’s favorite serial entrepreneur, Luis Lucky is back. If you’re new to our blog you’ll figure out quickly Luis Lucky, isn’t very lucky. In his last adventure he and a few “friends” had a business idea and together Luis Lucky and his “friends” formed a Limited Liability Company (“LLC”). It didn’t go well.
We catch up with our hero licking his legal wounds from his last adventure. Luis Lucky is convinced he knows what went wrong last time. It was everybody involved, but him! He did nothing wrong! Thus, the easy fix is to go it alone!
Undaunted, Luis Lucky forges ahead with a new business idea, and again, forms a Limited Liability Company in Florida. This time he retains exclusive ownership of the LLC. Thus, the LLC has only one member, Luis Lucky.
Some months later, Luis Lucky is at lunch with a fellow local business owner, Miss Informed. They get to talking and Miss Informed mentions off handedly that she overheard that Florida offers no asset protections to single member LLC’s. However, Miss Informed is no sucker. She made her on again, off again, significant other a member in her LLC. What could possibly go wrong there?
Later that night Luis Lucky is worried. He keeps thinking about what Miss Informed said about the lack of protections afforded Florida single member LLCs. He’s not so sure how good of an idea giving ownership interest to another person is after what happened last time.
Then, inspiration strikes! With a grin on his face and a chuckle on his breath, Luis Lucky updates his LLC’s information with the State of Florida, adding his dog, Mr. Scuffles, as a member of his LLC. All is well, right? Right?!
Let’s get into it.
Clarifying the Single Member LLC Confusion
Like our firm’s other blog posts, this too is based on actual problems our firm has helped business owners navigate. Like so many problems, active listening, and effective communication were critical in crafting the right solution.
What’s tricky about this issue isn’t the legal principals involved, it’s the confusion surrounding what assets are being referred to when Miss Informed told Luis Lucky that Florida offers no “asset protection” to single member LLCs.
That confusion causes business owners to do all kinds of interesting things, like add their spouse, significant other, or child as a member of the LLC, which, depending on the bona fide nature of such action, may add no additional protection at all, to the extent its even necessary.
Typically, when speaking about asset protection in conjunction with a business entity and an individual with an ownership interest in that entity (“members” in the context of LLCs), the concern being addressed is the danger of incurring personal or individual liability stemming from the actions of the business entity.
Said another way, a business owner concerned about protecting their assets in the context of operating their business are most often expressing concern over the ability of a lawsuit against their business to place in jeopardy their individual and personal assets such as savings accounts, stock portfolios or real estate investments.
Washing away the concerns expressed in the above paragraph is easily done. Simply put, the protections afforded to members of an LLC from personal liability for the actions of their LLC are the same for both single and multi-member LLCs.
So then, where is the confusion stemming from? Florida does indeed have something of a unique issue when it comes to Single Member LLCs; however, the issue is closer to a lack of “reverse asset protection.”
Introduction to Reverse Asset Protection: What Assets Are We Talking About Here?
Let’s use a hypothetical to explain. Let’s suppose a member of an LLC made some extremely poor decisions. For instance, let’s say this LLC member decided it would be a good idea to become heavily intoxicated, and subsequently crashed her personal car into a family of five killing them all.
Let’s further say the estate of those killed brings a legal action against this member and a judgment against her is entered in an amount that far exceeds any insurance policy. What protections is the LLC afforded from the judgment creditors coming after the assets of the LLC?
Here, multimember LLCs, and single member LLCs are indeed afforded different protections as it pertains to so called “reverse asset protection.”
How did this all come about? Well, it stems from a 2010 Florida Supreme Court Case, Olmstead v. Federal Trade Commission. What did that case hold? What did the Florida Legislature do the following year to address the holding when they passed the so called “Olmstead” patch bill? We’ll get into it all. Next week.
At Willbur Law we pride ourselves on transforming business problems into business opportunities. If you’re a business owner with concerns like the one in this blog post or other issues related to business ownership or disputes arising from business operations, don’t wait until next week! Call our firm today for a consultation. Let us craft a customized legal solution for your business today.