Business Asset Protection in Florida

Business assets in Florida have no statutory exemptions from creditor claims. Unlike individual debtors, who can protect their homestead, retirement accounts, annuities, and certain other property under Florida’s constitutional and statutory exemptions, a business entity has no exempt assets. Every dollar in a business bank account, every piece of equipment, every lease, every receivable, and every intangible asset including goodwill, domain names, patents, and client lists is exposed to a judgment creditor’s execution and levy.

This fundamental difference between personal and business asset protection is the starting point for any planning discussion. A business owner who has taken every step to protect personal wealth through Florida exemptions and tenancy by the entirety ownership may still be vulnerable through the business itself. A creditor who obtains a judgment against the business can record that judgment as a lien on all business-owned real estate, garnish business bank accounts and accounts receivable, and levy on leased offices, vehicles, and facilities. The creditor can effectively shut down a business to force a settlement.

Inside Liability vs. Outside Liability

Business asset protection planning requires an understanding of the two directions from which creditor claims can originate.

Inside liability arises from the business’s own operations. A customer slips and falls at a business location. A product causes injury. An employee commits negligence while acting within the scope of employment. In each case, the claim runs against the business entity itself, and all assets owned by the entity are at risk.

Outside liability arises from a business owner’s personal debts. A member of an LLC is sued individually for a car accident, a personal guarantee, or a professional malpractice claim. The creditor then attempts to reach the owner’s interest in the business to satisfy the personal judgment.

Effective business asset protection addresses both directions. The entity structure should prevent inside claims from reaching the owner’s personal assets, and it should prevent outside claims against an individual owner from disrupting the business or exposing the business’s assets.

Choosing the Right Entity Structure

The choice of business entity determines the baseline level of protection available to the business and its owners.

Sole Proprietorship

A sole proprietorship offers no asset protection whatsoever. There is no legal distinction between the individual and the business. All business debts are personal debts. All personal debts can reach business assets. The sole proprietorship is the default structure when an individual begins conducting business without forming a separate entity, and it is the structure most likely to result in total financial exposure for the owner.

Corporation

A Florida corporation creates a legal barrier between the shareholders’ personal assets and the corporation’s liabilities. However, corporations are weaker than LLCs from an asset protection perspective when the analysis turns to outside liability. A judgment creditor can levy on a debtor’s shares of corporate stock, and if the debtor is the sole or controlling shareholder, the creditor can effectively take control of the corporation and its assets. Florida law does not extend charging order protection to corporate shares.

Limited Liability Company

The LLC is the preferred entity for most business asset protection planning in Florida. Like a corporation, the LLC shields its members from inside liability. But unlike a corporation, a multi-member LLC also protects the business from outside claims against individual members through charging order protection.

Under Florida Statute § 605.0503, a creditor’s sole and exclusive remedy against a member’s interest in a multi-member LLC is a charging order, which entitles the creditor to receive distributions if and when they are declared. The creditor cannot seize business assets, participate in management, inspect financial records (if the operating agreement restricts access), or force the LLC to make distributions.

For single-member LLCs, the protection is weaker. A court can order foreclosure and sale of the membership interest if a charging order alone is insufficient to satisfy the judgment. This distinction makes the multi-member structure strongly preferable for any business where asset protection is a priority.

Limited Partnership

A Florida limited partnership separates general partners (who manage the business and have personal liability for partnership debts) from limited partners (who invest capital but do not participate in management and are generally not liable for partnership debts). Limited partnerships offer charging order protection similar to multi-member LLCs and can be useful when the ownership structure calls for a clear distinction between active management and passive investment.

Separating Liability Assets from Safe Assets

One of the most important principles in business asset protection is the separation of liability-producing assets from safe assets. A liability asset is one that can generate claims against its owner, such as commercial real estate, vehicles, heavy equipment, or any property where an accident or defect could result in a lawsuit. A safe asset is one that does not generate third-party claims, such as cash, securities, intellectual property, or receivables.

When a business holds both types of assets in a single entity, a claim arising from one liability asset puts every other asset at risk. A customer injury at a commercial property could result in a judgment that reaches the business’s bank accounts, equipment, and intellectual property.

The solution is to separate these assets into different entities. Liability assets should each be held in their own single-purpose LLC so that a claim against one property or one asset cannot reach the others. The operating business can then lease the property or equipment from the single-purpose LLC under an arm’s-length agreement.

Safe assets, including cash reserves, investment accounts, and intellectual property, should be held in a separate entity that does not engage in any activity likely to generate liability. Intellectual property such as trade names, patents, domain names, and proprietary software can be assigned to a holding LLC and then licensed back to the operating company. If the operating company is sued, the intellectual property is beyond the creditor’s reach because it is owned by a different entity.

Protecting Business Cash and Accounts

Business bank accounts are among the most vulnerable assets because they can be garnished immediately after a judgment is entered. A creditor serves a writ of garnishment on the bank, and the bank freezes the account. The business may lose access to operating funds without warning.

There are several approaches to reducing this exposure. Maintaining operating accounts at banks that do not hold the business’s loans eliminates the risk of setoff, where a lending bank applies the account balance against a defaulted loan without going through the garnishment process. Using sweep accounts to move excess cash into a separate holding entity on a regular basis limits the amount available in the operating account at any given time.

For businesses that generate substantial receivables, structuring those receivables to flow through a separate entity can add a layer of protection. The operating company assigns its receivables to a billing entity or factor, which collects the payments and distributes funds to the operating company under a services agreement. The receivables themselves are no longer business assets subject to garnishment.

Personal Guarantees and Their Consequences

Personal guarantees are one of the most common ways that business owners lose the benefit of entity protection. When a business owner personally guarantees a lease, loan, or vendor agreement, they become individually liable for that obligation. If the business defaults, the creditor can pursue both the business assets and the owner’s personal assets.

In practice, most lenders and commercial landlords require personal guarantees from closely held business owners. The guarantee cannot always be avoided, but its scope can sometimes be negotiated. Limiting the guarantee to a specific dollar amount, including a burndown provision that reduces the guarantee over time, or requiring the guarantee to expire after a certain period can all reduce the owner’s exposure.

The operating agreement should address what happens when a member signs a personal guarantee. Some agreements require member consent before any member can guarantee a business obligation. Others specify that the guaranteeing member bears the risk of loss if the guarantee is called, protecting the other members’ interests.

Insurance as the First Line of Defense

Entity structuring and asset separation are essential, but insurance remains the first and most practical layer of business asset protection. A properly insured business may never need to rely on structural protections because the insurance carrier handles claims and pays judgments within policy limits.

Every business should carry general commercial liability insurance adequate for the risks of its industry. Businesses that own real estate need property and premises liability coverage. Businesses that provide professional services need professional liability or errors and omissions coverage. Businesses with employees need workers’ compensation and employment practices liability coverage.

An umbrella policy provides excess liability coverage above the limits of underlying policies. For businesses with significant exposure, the umbrella policy is the single most cost-effective asset protection measure available.

Insurance does not eliminate the need for structural planning because policies have limits, exclusions, and conditions that may leave gaps. But it handles the majority of routine claims and provides the time and resources to mount a defense without exposing business assets to immediate seizure.

Coordinating Business and Personal Protection

Business asset protection does not exist in isolation. The business owner’s personal asset protection plan and the business plan must work together. An owner who holds LLC interests in a revocable trust for estate planning purposes needs an operating agreement that permits trust ownership and defines how the trustee exercises membership rights. A married owner who holds LLC interests as tenants by the entirety with a spouse needs the operating agreement to document that ownership structure explicitly.

The flow of money between the business and the owner also requires attention. Distributions from the LLC to the owner become personal assets subject to the owner’s personal creditors. Timing and structuring distributions to flow into exempt or protected accounts, such as retirement plans or annuities, can preserve the protection that existed at the business level.

Business owners who have significant personal liability exposure should also consider whether an offshore trust or a domestic asset protection trust adds value to the overall plan. These structures protect assets that have already been distributed from the business and are no longer shielded by entity-level protections.