A couple of weeks ago, based on the 2010 case of Olmstead v. Federal Trade Commission, Florida Legislature concluded that multi-member LLCs are protected against creditors seeking to seize ownership interest in the LLC.  They clearly expressed their point by rewriting Florida Statute, §608.433, to match their intent.  As a result, Florida is one of only seven states to determine that the specific charging order of creditors is the only means of recovery against an LLC.

This recent Florida ruling just adds to the list of advantages of choosing an LLC over a corporation in the state of Florida.  In order to be better protected, a small business owner should be familiar with these advantages.

First, assets are much better protected through a multi-member limited liability company than through a corporation. Under a corporation, if an individual owner of a company, even with multiple owners, is sued, the creditor can seize shares of the corporation that form the entire ownership of the company.  Conversely, through a limited liability company, the creditor cannot seize those shares of ownership.

Second, there is tax advantage to using multi-member LLCs compared to corporations.  The owners of an LLC get to choose how their company will be taxed dependent on what form they decide to fill out.  The company can be taxed as an “S” or “C” corporation and, if there are multiple owners in the LLC, it will be taxed as a partnership by default.

Third, a multi-member LLC has an operating agreement that provides additional asset protection for business owners.  Under the operating agreement, which is regulations for the LLC, the owner can include a stipulation that can scare off creditors from even considering a charging order by essentially assuring penalty against them if they do so.

Fourth, multi-member LLCs are also beneficial when estate planning.  For example, if one was to give the gift of their partial interest of a company to a successor, an LLC allows the giver to remain in control of the company even though he or she no longer owns their share.  Furthermore, an owner of an LLC can transfer the interest of the business to the successor while still maintaining control of the operations for years to come while at the same time taking advantage of a $5 million dollar exemption on gift tax, if done before 2013.

Fifth, the transfer from an already existing corporation to a multi-member LLC is an easy and tax free transition. The process of the conversion is statutory based on Florida Law, which makes the process very efficient. Once the corporation is made into an LLC, the company is viewed as if it has always been an LLC since the time the corporation was formed.  Furthermore, after the conversion, if the company has the same owners with the same share proportions as prior to the conversion and those owners choose to have the LLC taxed in the same form that the corporation was taxed, there will be no additional taxation and no changes to how the LLC will be taxed.

In conclusion, unless a business is publicly owned or plans to go public, all business owners should be operating an LLC.  If you own a small business as a corporation and have no plans to go public, we urge you to convert to an LLC for all the reasons mentioned.  Contact a qualified estate and asset protection attorney as soon as possible to assist you.

For more information on successful Florida estate planning and probate, please contact the South Florida law firm of Wild Felice & Pardo, P.A. at 954-944-2855 or via email at info@wfplaw.com to schedule your free consultation.

It’s a Wild world. Are you protected?