New Florida LLC Law Restricts Distributions to Members

The new Florida LLC law changes the rules about distributions of cash and other assets to LLC members. The law makes it difficult for an LLC facing a potential lawsuit to dissipate is collectible assets through distributions out to its member owners.

Section 605.0405 of the new act provides that a Florida LLC may not make any distributions if the LLC is insolvent or if the distributions would render the LLC insolvent. The members or manager can be personally liable if they consent to an improper distributions. Also, the recipient of the distribution may also be personally liable to the creditor if he knows that the distribution he receives violates the law’s distribution rules.

If a creditor with a judgment against an LLC finds that the LLC is insolvent because it has transferred assets to its members the creditor may now go after the recipients of distributions either on fraudulent transfer theory or as a violation of the LLC Act’s above described distribution restrictions and remedies.

The new statute is effective on January 1, 2014. Thereafter, emptying an LLC of assets no longer is a viable tool to escape the LLC’s creditors.