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.
Single member LLCs (just one owner) were determined to be unprotected in 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. That decision reached beyond the question asked by the 11th Federal Circuit Court of Appeals to frame a solution which effectively recast interests in LLC to have the same legal attributes as stock in corporations. That means that such interests are legally freely transferable, and capable of seizure and sale in judicial process.
The Florida Bar has sought a middle ground in negotiation with the banking lobby to protect multi-member LLCs. Legislation is expected to be signed by Governor Scott shortly. However many of us are not convinced that the legislation cures the patient’s ills, and firmly believe that this is a palliative at best.
LLCs have been the most popular form of business today due to their supposed dual protection attributes of protecting individual owners as to operational liability, and limiting third party collection. We have devised alternative planning for our clients, and will continue to seek to improve protective plans and choices. LLCs have been a very capable tool in estate planning as well as business, allowing the grouping of assets, structuring buy-sell agreements, providing for active business continuity, and for post-death control by the best equipped person.
Regretably, the influence of the large banking lobby on this legislative “fix” (and the level of campaign contributions made by banking interests) has damaged the reputation of Florida in the business and estate planning arena beyond that which favorable weather will offset. There are other place to live or move your business to. We already have seen the movement away from our state, and expect more.