Florida Single-member LLC Now Lacks the Luster It Once Had
The Florida Single-member Limited Liability Company (LLC) took a huge hit last week when the Florida Supreme Court issued its ruling in the Olmstead v. FTC case. On June 24th, the Florida Supreme Court ruled that a judgment creditor may seize the ownership interests of a member in a single-member LLC. To fully understand the courts ruling, let me first discuss what used to be the benefits of an LLC versus say a C Corporation.
The LLC is a business entity that provides the benefits of both a partnership and a corporation. LLCs are taxed either as a sole proprietorship, partnership or S corporation, depending on what box you checked when you formed the LLC. LLCs protect against liability that arises from business activities, just like a C corporation. However, when someone gets a personal judgment against you as a shareholder of a C corporation, they may obtain your shares of stock. With a LLC, that was not the case. A judgment creditor, until last week in Florida, was only able to get a charging order. A charging order limited the judgment creditor to receiving only distributions from the LLC. The LLC does not have to make a distribution. Further, the holder of the charging order would pay taxes on the income allocated to them because they had the right to the income, not the member. The charging order does not give the creditor any management rights at all, only a right to the distribution.
In my next blog I will discuss what the Florida Supreme Court case ruling does to existing law. To discuss your LLC or other business entity, please consult our Jacksonville planning attorney.
