Planning Ideas for Single Member LLCs Post-Olmstead
Remember that the Florida Supreme Court in Olmstead ruled that a single member LLC gives no asset protection to the LLC owner and a creditor may obtain the LLC owners interest in the LLC. The charging order was not an exclusive remedy. Having stated the foregoing, here are a few ideas moving forward:
1. Add other members to the LLC making it a multi-member LLC. The Olmstead case stated that the charging order was not the sole remedy against a single member LLC. However, the court ruling also left open to interpretation the charging order as a sole remedy against a member of a multi-member LLC.
2. Move your LLC to another state. Just because you do business in Florida doesn’t mean you have to have a Florida LLC. You can move your LLC to another state such as Wyoming or Delaware whose state law specifically states that the charging order is the sole remedy against a member’s LLC interest. However, those state laws have never been challenged and could always be overturned.
3. Hold the LLC interest as tenants by the entirety between husband and wife. Make sure the stock certificate issued states that the interest is owned as tenants by the entirety and draft the operating agreement clearly so that it states that it is a single-member LLC. The only way a creditor could get the membership interest in that instance would be to sue both the husband and the wife. The drawback with this technique is that if the spouses separate, then the interest is no longer owned as tenants by the entirety.
4. Convert the LLC to an LLLP. However to do this, you have to add another member to the entity since it takes more than one person to form a partnership.
As stated in previous blog articles, the Florida Bar is working with the Florida legislature to come up with a new law to patch the hole created by the Olmstead case. However, the single member LLC may still be vulnerable under any new laws.
To learn more about which business entity may be best for you, please contact Wood, Atter & Wolf to set up an appointment to discuss your business needs.
