Single-Member LLCs and Asset Protection in Florida

A single-member LLC in Florida does not provide meaningful asset protection for the owner’s membership interest. Florida law permits a judgment creditor to foreclose and purchase the sole member’s entire interest in the LLC if a charging order alone is unlikely to satisfy the judgment within a reasonable time. This stands in contrast to multi-member LLCs, where the charging order is the creditor’s exclusive remedy and foreclosure is not available.

Understanding this distinction is fundamental to LLC asset protection planning in Florida. A single-member LLC still protects the owner’s personal assets from the LLC’s own business liabilities. That inside liability shield functions the same way regardless of the number of members. The vulnerability exists only on the outside liability side, where a creditor with a judgment against the individual owner seeks to reach the owner’s interest in the LLC.

How Creditor Collection Works Against a Single-Member LLC

The collection process against a single-member LLC follows a statutory sequence under Florida Statute § 605.0503.

The first step is the same as for any LLC. The creditor obtains a charging order, which acts as a lien on the debtor’s transferable interest. The charging order requires the LLC to pay over to the creditor any distributions that would otherwise go to the debtor-member. If the LLC makes no distributions, the creditor receives nothing from the charging order alone.

With a multi-member LLC, the process stops there. The charging order is the creditor’s sole and exclusive remedy, and the creditor cannot force a sale of the membership interest or take control of the LLC.

With a single-member LLC, the statute provides additional remedies. If the creditor demonstrates to the court that the charging order will not satisfy the judgment within a reasonable time, the court may order the sale of the debtor’s membership interest through a foreclosure proceeding. The “reasonable time” standard gives the court discretion, but in practice, a single-member LLC that makes no distributions gives the creditor a strong argument that the charging order is inadequate.

If the membership interest is sold at foreclosure, the purchaser acquires the debtor’s entire ownership stake and becomes the new sole member of the LLC. The purchaser then has full access to the LLC’s assets, including its bank accounts, real estate, and other property. The original owner loses both the membership interest and any control over the LLC.

The Olmstead Decision and Legislative Response

The vulnerability of single-member LLCs in Florida traces to the Florida Supreme Court’s 2010 decision in Olmstead v. Federal Trade Commission. Before Olmstead, many practitioners believed that the charging order was the exclusive creditor remedy against all LLC interests, whether the LLC had one member or multiple members.

The Supreme Court disagreed. The Court held that a judgment creditor of the sole member of an LLC is not limited to a charging order as its only remedy. The reasoning was straightforward: the charging order exists primarily to protect non-debtor members from having an unwanted third party forced into the LLC. When there is only one member, there are no non-debtor members to protect, and the rationale for limiting the creditor to a charging order disappears.

The Florida Legislature responded in 2011 with what is known as the Olmstead Patch, which was further refined when the Legislature rewrote the entire LLC statute in 2013. The current statute, § 605.0503, codifies the distinction between single-member and multi-member LLCs. For multi-member LLCs, the charging order is the exclusive remedy. For single-member LLCs, the court may authorize foreclosure and sale if the charging order proves inadequate.

Why Forming in Another State Does Not Help

Florida residents who learn about the single-member LLC vulnerability often consider forming their LLC in a state that protects single-member interests, such as Delaware, Wyoming, or Nevada. Those states provide that the charging order is the exclusive creditor remedy against all LLC interests regardless of the number of members.

This approach does not work for Florida residents. Florida courts treat an LLC membership interest as intangible personal property located where the owner resides. When a Florida creditor seeks to collect against a Florida resident’s membership interest, the Florida court applies Florida law to the collection proceeding, not the law of the state where the LLC was formed.

A Delaware court addressed this issue directly in a case involving a Utah resident who owned single-member Delaware LLCs. A Utah court had permitted the creditor to foreclose the debtor’s LLC interests under Utah law. The debtor asked the Delaware court to declare that the Utah foreclosure was invalid under Delaware law. The Delaware court refused, holding that the foreclosure issue had already been resolved under the law of the debtor’s home state.

The same principle applies to Florida residents who form LLCs in Wyoming, Nevada, South Dakota, or any other state with favorable single-member protections. A Florida court is likely to apply Florida’s creditor remedies to the collection proceeding because the court has jurisdiction over the debtor and the membership interest, regardless of where the LLC was organized.

Forming an LLC in another state also creates practical complications. If the LLC owns Florida real estate or conducts business in Florida, it must register as a foreign LLC, which adds filing requirements and costs. And if the collection action is brought in the other state, the debtor may lose Florida-specific protections that would have applied if the LLC were formed locally. An Iowa Supreme Court case illustrates this risk: a Florida couple who owned a membership interest in an Iowa LLC lost the tenancy by the entirety protection that would have applied under Florida law because the Iowa court applied Iowa law, which does not recognize entireties ownership.

Solutions for Single-Member LLC Owners

Florida law creates a clear incentive to structure LLCs with at least two members. Several approaches are available for single-member LLC owners who want to strengthen their asset protection.

The most common solution is adding a second member to convert the LLC to a multi-member structure. If the owner is married, the spouse is an obvious candidate. The operating agreement should be amended to reflect the new membership structure, and the membership interests should be properly documented. The multi-member LLC article covers the requirements and considerations for adding a second member, including using an irrevocable trust as a member when no business partner is available.

For married couples, holding the LLC interest as tenants by the entirety may provide protection from the individual creditors of either spouse. However, TBE ownership does not protect against joint creditors, and there is an open question about whether a TBE-owned LLC is treated as single-member or multi-member for charging order purposes. No Florida court has resolved this issue definitively.

A Florida limited liability limited partnership (LLLP) offers another alternative for owners who cannot practically add a second member. The owner forms an LLLP where the owner holds 100% of the limited partnership interest, and a separate LLC or corporation controlled by the owner serves as the general partner. Florida Statute § 620.8504 provides that a creditor’s exclusive remedy against a judgment debtor’s limited partnership interest is a charging order, without the single-member exception that exists in the LLC statute. The LLLP structure thus achieves charging order exclusivity even with a single economic owner.

Another strategy involves the LLC operating agreement itself. Even in a single-member LLC, the operating agreement can include provisions that make the membership interest less attractive to a creditor who acquires it through foreclosure. For example, the agreement can designate the original owner as a permanent, non-removable manager with exclusive authority over the LLC’s operations and distributions. A creditor who purchases the membership interest at foreclosure would own an LLC it cannot control, which significantly reduces the practical value of the foreclosure remedy. This approach has not been tested in court, but it adds a layer of deterrence within the existing single-member structure.

When a Single-Member LLC Still Makes Sense

Despite the asset protection limitations, a single-member LLC remains useful in certain situations. The inside liability shield is unaffected by the number of members. If the primary concern is protecting the owner’s personal assets from claims arising out of the LLC’s business activities, a single-member LLC accomplishes that objective. A rental property LLC owned by one person still protects the owner from slip-and-fall claims or tenant disputes related to the property.

Single-member LLCs also serve legitimate purposes unrelated to asset protection. They provide pass-through taxation without the need for a partnership return (the LLC is treated as a disregarded entity for federal tax purposes). They offer organizational flexibility. And they can be converted to multi-member status at any time by adding a second member, provided the conversion is not made in response to an existing or imminent claim, which could constitute a fraudulent transfer.

The key point is that a single-member LLC should not be relied upon as an asset protection tool for the owner’s membership interest. Business owners who want both inside and outside liability protection should structure their LLCs with multiple members or consider alternative entity structures from the outset.