One benefit of forming an LLC in Florida is that the ownership interest of the LLC members can be protected, at least in part, from the claims of the member’s creditors. However, this protection only extends to an LLC which has more than a single member. Understanding how a membership interest in a multi-member LLC is treated can help explain the difference when it comes to a single-member LLC.
Under current Florida law, when a member in a multi-member LLC has a judgment creditor, that creditor can only assert a charging order against the member’s interests in the LLC or the distribution rights from the LLC. However, the creditor cannot force a sale of the member’s interest in the LLC. This means that the creditor can seek payment from monies to be paid out of the LLC to the member but the member’s interest in the LLC cannot be forcibly taken away from him or her.
However, in the case of a limited liability company that has only one member, the treatment differs. If a judgment creditor of a member establishes to the satisfaction of a court of competent jurisdiction that distributions under a charging order will not satisfy the judgment within a reasonable time, a charging order is not the sole and exclusive remedy by which the judgment creditor may satisfy the judgment against a judgment debtor who is the sole member of a limited liability company or the transferee of the sole member, and upon such showing, the court may order the sale of that interest in the limited liability company pursuant to a foreclosure sale. A judgment creditor may make a showing to the court that distributions under a charging order will not satisfy the judgment within a reasonable time at any time after the entry of the judgment and may do so at the same time that the judgment creditor applies for the entry of a charging order.
When starting a business and considering forming an entity, it is important to consider whether an LLC or a corporation is the better approach. Unfortunately, with all of the “do-it-yourself” resources available these days, many persons do not seek legal advice before forming an entity. If you’re considering doing so, you should seek advice from an experienced attorney before proceeding.