Chinks in the Armor: Current Trends in Limited Liability Company Structure After Olmstead

This article is about different types of businesses and how they protect the owners’ assets from outside creditors. It explains that corporations have been around for a long time and one of their main benefits is that they protect the owners’ assets from claims against the business. It goes on to talk about how sometimes the protection can be broken, and the owners’ assets can be reached by creditors. The article discusses the rules that determine whether creditors can go after the owners’ assets. The instrumentality rule requires a plaintiff to prove three things against shareholders: 1) complete control of the company’s policies and practices, 2) using that control to commit fraud or wrongdoing, and 3) causing harm. If two companies are basically controlled as one due to common owners, officers, or shareholders, the identity rule applies. Limited liability companies (LLCs) gained popularity in Florida after tax changes, and limited liability limited partnerships (LLLPs) offer protection to all partners. A Connecticut court held that it could hold individual members of an LLC personally responsible if the company’s veil is pierced. If a business owner sets up a separate company to protect their assets, a court can still hold them responsible for debts if they misuse the company. In one case, a business owner used a company to pay for personal expenses and give money to family members, so the court made the owner pay the debt using the company’s assets. This shows that using a separate company to protect assets may not always work. Limited partnerships and LLCs can also protect assets from creditors, but a creditor can still get a court order to take the money the owner is supposed to get from the company. In 2005, a group in Florida made changes to the law for limited partnerships. They gave creditors of a limited partnership a “charging order” as the only way to get their money back. This is similar to the protection that LLCs have. In summary, the charging order remedy is the only way for a creditor to collect money from a limited partnership interest. However, for a single-member LLC, the charging order may not be the only option for the creditor. In some cases, a court can authorize the sale of the debtor’s interest in the LLC. In bankruptcy cases, the trustee may take over the debtor’s interest in the LLC. In a recent court case, a receiver was appointed to manage the assets of a single-member LLC to satisfy a judgment. The Florida Supreme Court ruled that a charging lien is not the only remedy for a single-member LLC. This means that creditors may have other options for collecting money from a single-member LLC. The court ruled that a judgment-debtor must surrender their single-member LLC to pay off a creditor. The IRS cannot put a tax lien on a single-member LLC, but there are loopholes for creditors to go after the LLC’s assets. Florida law currently only allows the charging order as the sole remedy, but it may change in the future. It’s safer to use a limited liability limited partnership in this situation. 1) Consider adding more people to your business to protect it from being taken by creditors in case of a lawsuit.

2) Moving to another state might not protect your business from creditors, so leaving the country might be a better option.

3) If you’re married, you can protect your business from creditors by sharing ownership with your spouse. But this might cause issues if you’re not married, have a prenuptial agreement, or if one of you passes away or you get a divorce. The best option for protecting your business from creditors is to use a type of partnership called an LLLP. It’s a little more expensive and requires a partnership tax return, but it provides good protection. You’ll need a real second member and must identify the general partner, which can be a corporation, an LLC, or an individual. An individual general partner may be best because the creditor can only obtain a charging lien against their interest. After that, the creditor can’t affect the company business without the consent of the other partners. Single-member LLCs can also be used to protect from liability and for tax purposes. LLCs can be used to create barriers between companies to protect them from financial problems and lawsuits. They can also be set up so that if a company goes bankrupt, its lenders have some control over decisions that could affect their ability to get their money back. These are references to specific legal statutes and court cases related to partnership and foreclosure laws in different states. They also mention cases involving the Federal Trade Commission and the IRS. The references are used to support legal arguments and provide examples of how the law is applied in different situations.

Source: https://www.floridabar.org/the-florida-bar-journal/chinks-in-the-armor-current-trends-in-limited-liability-company-structure-after-olmstead/