LLCs are often used for businesses because they offer dual protection:
- Limited liability of owners and managers for entity level acts;
- Limited ability to “take” an ownership interest away to collect for an outside personal liability.
Most of us have believed that a single member LLC (just one owner) was at some risk if a collection effort against the owner sought to take the LLC membership interest away. After all, no one else would be affected except the debtor owner. Regrettably, the decision of the Florida Supreme Court in Olmstead v. Federal Trade Commission, SC08‑1009 (June 24, 2010) http://caselaw.findlaw.com/fl-supreme-court/1528945.html has reached beyond that to frame a solution for an unasked question. This decision places the protections of multiple member LLCs in serious question.
O.K., so what? Damage to the fragile business climate of Florida is the WHAT! That is not an overstatement. LLCs are the most popular form of business today due to their dual protection attributes. Justice Lewis in his dissent points out the numerous problems and errors of the position taken by the majority. His minority opinion would probably get a typical attorney disciplined, but he is an equal, a colleague of the Supreme Court, and can say those things without risk. It is a bad day, and we are seeking the best form of replacement planning for our clients. No doubt that some businesses will reestablish in other, more protective states. Even if they continue their business activities for now in Florida, state fees are going elsewhere. Further, many businesses are able to move to other warm climates more favorable than Florida – can you say Nevada? Even Colorado s favorable if not wam (Florida in August? Colorado sound good!).
LLCs have been a very capable tool in estate planning as well, allowing the grouping of assets, structuring buy-sell agreements, providing for active business continuity, and providing for post-death control by the best equipped person. That may move outside of Florida as well – and many times the families will follow. Nevada has no income tax . . . . .
I can’t help but think that the Federal Trade Commission as a litigant somehow impressed the Court in favor of the FTC position. Whatever the reason behind the faulty reasoning, the Court has erred. Allan Gassman, a lawyer well versed in the use of LLCs in estate planning observes: Well respected bankruptcy and debtor-creditor lawyers have commented that the Supreme Court will be severely criticized for this “non-business law savvy” decision.
In the meantime, if your planning is critical, you may wish to rethink your single member LLC to at least have another member, or to call your counsel to reconsider your plan as a whole.