LLC asset protection in Florida

A Florida LLC provides asset protection because it protects both the owner’s assets from company liabilities and the owner’s LLC  interest from the owner’s personal judgment creditors.

The limited liability company provides a “shield” similar to the so-called corporate shield that protects corporation stockholders.

What Is a Florida LLC?

Florida limited liability companies are legal entities that may own assets or operate a business. LLCs are created pursuant to Florida Statutes. Florida’s Statute Chapter 605 sets forth the rules for Florida LLCs. The statute is “the Florida Revised Limited Liability Company Act.” A Florida  LLC is controlled by a manager who directs the LLC’s business affairs. Members invest initial capital in the LLC, and they can incur gains or losses from their proportionate share of the LLC’s financial interests.

An individual can be both a manager and a member of an LLC. The manager of the LLC can be a member or non-member.

Do Florida LLCs Protect Your Personal Assets?

LLCs protect your assets from people who sue the LLC. Anyone might sue an LLC or a corporation because of a commercial dispute. The lawsuit against the LLC itself does not threaten the owners in their individual capacity because of the corporate shield. Your risk is limited to your investment in the limited liability company.

Florida LLC Charging Lien Protection

Florida’s charging order law helps your LLC protect your LLC interests from your creditors. A Florida LLC membership interest is not an exempt asset , but creditors have limited ability to collect a judgment from a debtor’s LLC interest.

Florida law provides that a judgment creditor cannot seize or garnish your LLC ownership interests. The judgment creditor cannot attack assets, financial accounts, or real estate owned in the name of the LLC. In a properly drafted operating agreement, a creditor cannot inspect the LLC’s financial records and cannot participate in management.

A Florida judgment creditor’s collection rights are limited to a charging lien, or charging order, against your multi-member LLC interest. Florida Statute 605.0503 provides that the charging order is the creditor’s exclusive remedy against a membership interest in an LLC.

How Does A Creditor Get a Charging Lien on LLC Interests?

The creditor can obtain a charging lien in the court that issued a judgment. The creditor files a motion for a charging lien, and the court will issue the charging order against the LLC. The charging order gives the creditor a lien against any distributions of cash or other property, if any, which the  LLC makes or owes you. The judgment creditor receives nothing if the LLC or partnership does not distribute money. All undistributed assets and accrued cash flow remain inside the LLC or partnership.

There is an IRS revenue ruling that held that in the event an LLC has taxable income allocated to a debtor/member, and the LLC makes no distributions that are attachable by a charging lien, the member’s creditor is responsible for the member’s income tax liability even though the creditor receives no distributions by virtue of its charging lien. However, more recent court decisions suggest that a creditor is not liable for taxes on income the creditor does not receive because of a charging lien.

We help protect your assets from creditors.

We offer customized advice for clients throughout Florida. Get answers for your specific situation by phone or Zoom.

Alper Law attorneys

Single Member LLC Protection

A single-member LLC does not provide reliable asset protection because the creditor remedy is not limited to a charging lien.

The 2013 amendment of Florida’s LLC statute permits creditors to use foreclosure and other alternative collection remedies against a membership interest in a single-member LLC. The creditor must demonstrate only that its judgment will not be fully satisfied in a “reasonable time” from a charging lien on the single-member LLC membership interest.

Once the creditor demonstrates the inadequacy of a charging lien, the court may permit the creditor to foreclose the membership interest. A creditor may buy the membership interest at the foreclosure sale and replace you as the LLC’s sole member. LLCs designed for asset protection should include at least two members, and existing LLCs should add at least one other member to restrict a creditor to a charging lien.

Single-Member LLCs Provide Asset Protection in Some States

Some states, including Wyoming, Delaware, South Dakota, Nevada, and others, do not distinguish between single-member and multi-member LLCs. In those states, a charging lien is the creditor’s exclusive remedy against all LLC interests regardless of the number of LLC members.

Forming a single-member LLC in one of these states will likely not help you in a Florida court. Florida courts have ruled that LLC interests are intangible personal property located where the owner resides regardless of where the LLC was created.

Advantage of Florida Limited Liability Partnerships Over LLCs

A Florida limited liability partnership (LLLP) may be a better than an a single-member LLC for asset protection. For example, a person can form an LLLP where the person owns 100% of the limited partnership interest, and the same person forms an LLC or corporation to act as the general partner. In such a case, the LLLP agreement may provide that all, or nearly all, income is distributed to the limited partners and none, of the income goes to the general partner.

If there is a judgment against the limited partner, then the creditor’s sole remedy is a charging lien under Florida Statute 620.1703. Unlike the LLC laws, the partnership statute does not distinguish between single-member and multi-member entities in terms of creditor remedies. The creditor gets no additional remedies where one person owns the entire limited partnership interest.

Multi-Member LLCs

The Florida LLC statute does not specify the minimum amount of LLC interests a second member must own to make an LLC a “multi-member LLC.” Most attorneys advise that a second member have at least a 5 percent membership interest in LLC equity.

Adding a second member to an existing single-member LLC can constitute a fraudulent transfer if an LLC interest is assigned without fair consideration. It is often better for the initial member to sell an economic interest to a new member for reasonably equivalent value and then convey the LLC interest to the second member. Alternatively, the initial member may accept new capital from a second member in exchange for an economic interest issued by the LLC.

Another alternative way to add a second LLC member is having the single-member create an irrevocable trust for the benefit of family members and then gift a small LLC interest to fund the trust. The trustee of the trust can be a second LLC member.

The 2013 Florida LLC statute, section 605.0401, revised the definition of an LLC member in a way that makes it easier to add non-equity members to an LLC to create a multi-member LLC. The new law defines an LLC member as a person who may or may not hold any economic LLC interest and may or may not be obligated to contribute money or other capital to the LLC. Therefore, with a properly drafted operating agreement, a minority second member may not have to pay or contribute money in consideration for their membership interest. A new LLC may include a second member who has voting and management rights but no economic interest.

Forming an LLC in Another State

There are no significant legal benefits to a Florida resident creating an LLC outside of Florida. The formation of LLCs outside of Florida, such as in Nevada and Wyoming, is widely promoted on the internet. The promised benefit of forming an LLC in a state other than Florida (a “foreign state”) is that the foreign state’s laws are more protective of the debtor’s LLC interest in single-member and in multi-member LLCs.

The supposed advantage of foreign LLCs assumes that the laws of the foreign state of formation will apply to a creditor’s collection effort in Florida, or that a Florida court may not impose a charging lien on a Florida debtor’s LLC interest because the Florida court lacks jurisdiction over the foreign state’s legal entities.

But, the general Florida rule is that the law applicable to a creditor’s execution of a civil judgment is the law of the state where you reside. Florida courts do not need jurisdiction over an LLC itself to impose a charging lien on your LLC membership interest.

Florida law governs a creditor’s efforts in executing the judgment against your LLC interest regardless of where you organized the entity. Promises of asset protection advantages of foreign LLCs for Florida residents are typically hype designed to sell an ineffective product. Filing an LLC in a foreign state will not provide a significant asset protection advantage for Florida residents.

Do Other State’s LLC Laws Provide Privacy of Ownership?

There are privacy advantages for creating an LLC in states other than Florida. Some states, including Nevada, Wyoming, and Delaware, do not require the filing of an LLC Articles of Organization to name the LLC’s manager or any members. Therefore, a creditor’s general search of public records will not reveal your connection to an LLC.

Don’t forget that a judgment creditor can require you to reveal your interest in any  LLC during discovery in aid of execution regardless of whether your LLC membership interest is otherwise disclosed publicly.

Transfering Assets to a Florida LLC

Transferring assets to a Florida LLC is often referred to as funding the LLC. Most transfers of assets to an LLC are accomplished by deed, bill of sale, or general assignment.

What Assets Should Be Transferred to an LLC?

You decide which of your assets should be transferred to your LLC. It helps to understand the distinction between safe assets and liability assets.

Safe assets are unlikely to invite their own liability. For example, publicly-traded investment securities such as stocks, bonds, or mutual funds are safe assets because they do not expose the owner entity to legal liability.

Liability assets generate risk because these assets involve direct dealings with third parties. Examples of liability assets are rental real estate, commercial businesses, boats, or motor vehicles.

If the LLC itself incurs liability through ownership and operation of a liability asset, the entity will be the target of a lawsuit. All LLC assets could be subject to the claims of the LLC’s judgment creditor. Liability assets should be titled and operated in one or more special-purpose entities that contain no safe assets and only one liability asset. Effective asset protection isolates valuable, safe assets from potential liability assets.

We tell you what you can do to protect your assets.

We’ve advised thousands of clients nationwide on how to protect their assets from creditors. Schedule a phone or Zoom consultation to get started.

Alper Law attorneys

Making an LLC Transfer on Death

A Florida LLC interest can transfer on death in two ways: through a revocable living trust or the operating agreement.

A Living Trust Can Transfer Your LLC Interest After Death

A living trust is the most common way to transfer an LLC to your heirs after your death. The named successor trustee may transfer beneficial ownership of the LLC  to the designated trust beneficiaries outside of any probate proceeding.

A LLC Operating Agreement Can Provide For An After-Death LLC Transfer

The second way to transfer your LLC after your death is a transfer on death designation in the LLC operating agreement under Florida Statutes, Chapter 711. If the LLC’s operating agreement expresses your ownership with a transfer-on-death designation, the interest will automatically transfer to your designated beneficiary upon death.

The LLC operating agreement may limit the designated beneficiary’s interest to a “transferable interest,” essentially a right to profit and distributions. The beneficiary may have to execute a copy of the operating agreement. The transfer on death clause in the operating agreement will take precedence over any contrary bequest in your will or living trust.

LLC Statement of Authority

A statement of authority designates a member, manager, or any other person to act on behalf of the LLC. Florida Statute 605.0302 permits an LLC to file a Statement of Authority with the Secretary, which gives public notice of authorized LLC agents having the right to transfer LLC property or enter into LLC transactions. The Statement may also place conditions or limits on granted authority.

Statements of Authority are useful for some LLCs. A Statement of Authority can help prevent LLC employees and agents from conveying LLC property or incurring LLC liability without the knowledge, consent, and proper authorization of LLC owners and management. LLCs that organize in other states to maintain privacy need to state authority of certain individuals to act in Florida on behalf of the LLC when the

Articles of Organization in the foreign state do not disclose management authority.

Benefits of Florida LLC

An LLC provides numerous benefits for a Florida operating business or a personal investment vehicle. An LLC combines the benefits of limited liability protection with flexibility in management and tax treatment. The advantages of forming a Florida LLC include the following:

  1. Personal Asset Protection: An LLC’s “limited liability” aspect ensures that you are generally not personally responsible for the company’s debts or liabilities. Your assets are shielded from business-related claims or lawsuits.
  2. Separation of Personal and Business Finances: An  LLC helps you separate your personal and business finances. Your personal assets, such as homes, vehicles, and savings, are not at risk in case of legal disputes or financial challenges faced by the LLC.
  3. Tax Flexibility: An  LLC is a default pass-through entity for tax purposes. This means the company’s profits and losses “pass-through” to you, and you report them on your tax returns. This pass-through avoids the double taxation of C corporations. The LLC  permits you to elect different tax classifications. You can have your LLC taxed as a sole proprietorship, partnership, S Corporation, or C Corporation, depending on your specific needs and tax planning strategies.
  4. Management Flexibility: Unlike corporations, LLCs offer more management flexibility. You can choose to have a member-managed LLC, where all members are involved in decision-making, or a manager-managed LLC, where you appoint managers to handle day-to-day operations.
  5. Reduced Administrative Requirements: LLCs have fewer administrative burdens than corporations. There are typically no requirements for annual shareholder meetings or complex record-keeping procedures. This simplifies the legal administration of running the LLC business.
Example of a Florida LLC being protected from creditors

How to Form an LLC in Florida

The first step in forming a Florida LLC is applying with the Florida Secretary of State. You file proposed Articles of Organization to form a Florida limited liability company. Your Articles must suggest a name for the LLC. If you choose, request a name already in use, or the State will reject your LLC. Name availability is searchable on the Department of State website.

The application for a Florida LLC requires naming a registered agent. The registered agent is the person (or company) who is authorized to receive service of process if the LLC is sued. Any person residing in Florida can be designated as the registered agent.

The application to form an LLC includes the name of the LLC’s manager. The LLC members’ names are not required to be filed with the state. Members’ identities are private except as required on a federal tax return. A new multi-member LLC requires a federal tax identification number.

What Is Needed to File LLC Articles or Organization?

To file the Florida LLC, the Articles of Organization must include the following information:

  • Name of the entity
  • Address of the entity
  • Registered agent name
  • Registered agent office address
  • Purpose of LLC
  • Manager or authorized representative
  • Effective date

Why LLCs Need An Operating Agreement

LLC members need an LLC operating agreement to govern their business and legal relationship. These written agreements express the members’ financial benefits, duties, and obligations. The LLC operating agreements should also contain certain key provisions designed to accomplish your estate planning or asset protection goals.

What Is a Florida Limited Partnership?

A Florida limited partnership is an agreement between two classes of partners, general partners and limited partners, to conduct a business or invest in an asset. A general partner controls the partnership’s investments, distributions, and other business decisions. The limited partners have an equity interest in partnership assets, but they do not actively participate in the partnership’s business activity. A person may be both a general and a limited partner. Limited partnerships are separate legal entities created and administered under Florida Statutes, Chapter 620.

What Is the Difference Between a General Partner and a Limited Partner?

General partners and limited partners assume different amounts of personal financial risk. Limited partners are personally liable for partnership obligations and losses only to the extent of the amount of money they invested in the partnership. A general partner is personally liable for all partnership debt and obligations without limit.

Florida law provides that a limited partnership may elect to be treated as a “limited liability limited partnership” (“LLLP”) under Florida Statute 620.9001; the LLLP general partner is not personally liable for all partnership obligations. Florida Statute 620.8504 provides that a creditor’s exclusive remedy against a judgment debtor’s limited partnership interest is a charging lien on the partner’s transferable interest and distributions.

Florida Partnership vs. Florida LLC

Partnerships and LLCs have similar asset protection benefits. A charging lien is a creditor’s sole remedy against your interest in either a multi-member LLC or a partnership. As discussed above, the limited partnership may be a preferred asset protection tool when there is a single owner.

There are differences in the two types of legal entities that affect the entity’s choice for a particular business. For example, Florida charges much higher filing fees and annual fees for limited partnerships than for LLCs. Many CPAs believe that LLCs are more flexible entities for income tax planning.

In practice, partnerships are more commonly used for real estate investments, whereas LLCs are the popular choice for operating businesses, especially where there are multiple owners.

We help protect your assets from creditors.

We offer customized advice for clients throughout Florida. Get answers for your specific situation by phone or Zoom.

Alper Law attorneys

FAQs About LLCs

Below are commonly asked questions about LLC asset protection.

Are LLCs good for asset protection?

An LLC is one of the best asset protection tools for holding income-producing assets, such as real estate or other investments, or for operating a businesses. Multi-member Florida LLCs enjoy charging order protection from judgment creditors. Learn more about asset protection planning.

Does a single-member LLC have asset protection?

A single-member Florida LLC does not have the asset protection benefit of charging order limitation. In other words, a judgment creditor of your single-member owner could levy on your membership interests leading to a foreclosure sale of the company. A limited partnership is the better choice for the single owner.

Does Florida have charging order protection?

Yes, Florida provides charging order protection LLCs with more than one member. Single-member LLCs do not have the same charging order protection. A creditor can levy on the membership interests of the single-member.

Is an LLC protected from personal judgment?

Whether an LLC is protected from personal money judgments depends on whether the LLC is a single-member or multi-member. In most states, single-member LLC interests are not protected from personal judgments. However, multi-member LLCs are protected from personal judgments because a creditor’s remedy is limited to a lien on distributions.

Can a personal lawsuit affect your LLC?

Yes. If someone sues and gets a judgment against you personally, they can foreclose on your single-member LLC interest. If you have a multi-member LLC, they can only get a lien on your distributions.

Jon Alper

About the Author

I’m a nationally recognized attorney specializing in asset protection planning. I graduated with honors from the University of Florida Law School and have practiced law for almost 50 years.

I have been recognized as a legal expert by media outlets such as the New York Times and the Wall Street Journal. I have helped thousands of clients protect their assets from creditors.

Sign up for the latest articles.

Get notified by email when we publish a new article about asset protection law and strategies.