At least two members in a Florida LLC are required to limit creditor collection to a charging lien. Many clients who already have a single member LLC that they set up for their own business or investment have difficulty adding another member. For example, they may be unmarried or if married, may not want their spouse involved.
These are the two options I recommend to consider first. The client can find a third-party to invest money in the LLC in exchange for a minority interest. The third party could be a family member or unrelated. It is important that the share of LLC Interest given in consideration for the investment reflect the value of the LLC. If the LLC has an existing investment or an ongoing business I recommend an appraisal to establish LLC value and the discounted value of LLC interest. The total value of LLC interest is less than the value of LLC assets owing to well-established valuation discounts for lack of marketability and lack of control afforded the minority LLC interest. An appraiser would, for example, value ten percent of LLC interest less than the value of 10 percent of the LLC’s underlying assets.
Once value is found the new member can either contribute money to the LLC in exchange for LLC interests or purchase interests for a member. The member could obtain his LLC interest in exchange for a promissory note to the LLC. The purchaser does not want to pay a debtor-member with a note because payments pursuant to the note could be garnished.
Another way to find a second member to a Florida LLC is for the single-member owner to create an irrevocable trust for the benefit of his children or other family member. The irrevocable trust would be the second member. The debtor-member can gift LLC interests to the trust. If there is an existing claim against the debtor-member the gift could be voided as a fraudulent transfer assuming the LLC had significant value.. There would be no fraudulent transfer if the LLC had no assets with equity or other value. The children’s trust could be made incomplete for tax purposes in order that the transfers do not incur transfer tax.
When a second member is added to an LLC the membership change must be reflected in an amended operating agreement and on federal tax returns. If the LLC Certificate filed with the state of Florida shows membership interests then the LLC should file an amended certificate to reflect membership change.
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