An Advantage of Issuing LLC Ownership Certificates
Florida law does not require a limited liability company to issue physical ownership certificates to its members. Ownership of a Florida LLC may be established, and usually is stated, exclusively in the appropriate section of the LLC’s operating agreement. LLCs differ in this respect from corporations because corporation ownership is established by issuance of stock certificates rather than a shareholder agreement. Even though LLC certificates are not required, I sometimes advise clients to issue share certificates from their LLC.
Suppose someone wants to create an LLC in another state because that state’s laws provide better protection. An example would be someone who is forming a single member LLC and wants to create the LLC in a state that provides better protection than Florida for shares of single member LLCs, such as Nevada or Delaware. As I’ve stated several times on this blog, the law is unclear whether Florida or Delaware LLC laws would apply to a collection against a Florida residents shares in a single member LLC.
The debtor’s case for foreign LLC law applicability is better the more the debtor can show the LLC property or the debtor’s membership interest is connected to the foreign state. If the LLC operating agreement calls for the issuance of share certificates and states that the certificate is the primary evidence of ownership the debtor may physically place his certificate within the state where he chose to form the single member LLC. The debtor could argue that issuance of a charging lien against the certificate requires that the issuing court have jurisdiction over the share certificates. If the certificates are physically within the foreign state the debtor has a viable argument that only the foreign court can charge the shares, and the foreign court is more likely to apply that state’s protections of single member LLC interests.
I have not seen this theory tested. However, it is clear than a single member Florida LLC that does not provide for issued certificates, or if it does, rests the certificates in Florida, provides almost no protection of the owner’s interest from a judgment creditor.
About the Author
Jon Alper is an expert in asset protection planning for individuals and small businesses.
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