Minimum Percentage to Qualify as Multi-Member LLC
I have been getting a lot of questions about what the minimum percent a second member needs to have in order for an LLC to qualify as a multi-member LLC.
The purpose of forming a multi-member LLC, rather than a single-member or solely-owned LLC, is because a creditor’s exclusive remedy with respect to the LLC interest is a charging lien. In other words, a creditor can obtain a lien on profit distributions, but cannot foreclose on the underlying LLC interest.
Sometimes a single client may want to protect his LLC without involving anyone else, so he asks me how much of his LLC does he need to give his friend or family member in order for his LLC to qualify as a multi-member LLC. Is 1% enough? 5%? 0.01%?
The Florida LLC statute does not establish a minimum percentage to qualify an LLC as a multi-member LLC. However, Courts have sometimes disregarded the multi-member status when the second owner has only a percent or two. This is especially true if the LLC makes all of its distributions to the majority owner rather than proportionally to the stated membership interests.
When the second member is a family member, a Court may look more closely to see if the LLC truly operates as a multi-member LLC. On the other hand, when the second member is an unrelated third party and has paid fair market value for its membership interest—however small—then I think a court is more likely to find that the LLC is a multi-member LLC.
About the Author
Gideon Alper specializes in asset protection planning for individuals and their families.
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