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LLC Liability Protection: Just Because You Have One Doesn’t Mean Protection

LLC Liability Protection: Just Because You Have One Doesn’t Mean Protection

If you’ve ever even thought of starting a business, you probably know what benefits a Limited Liability Company can offer business owners. It’s in the name, after all—protection from liability. Not only can LLCs protect members from creditors seeking payments from company debts; they also protect the company from liability for the personal debt of its members. But does organizing your business as an LLC cover everything?  In a few cases in Florida, LLC liability protection is nonexistent.

What Does Not Have LLC Liability Protection?

In Florida, the protections that an LLC business structure affords its members are pretty air-tight, though individual circumstances could allow that LLC liability protection to lose power. Essentially, two primary circumstances can occur:

  • A creditor can obtain a charging order from the courts;
  • If the LLC only has a single member, the creditor can seek foreclosure.

Allow me to discuss these two circumstances below.

Charging Order

Essentially, a charging order allows a creditor to seek repayment from an LLC member through their relationship to the LLC. In many states, this can happen in a few ways. First, a creditor can obtain any money made through the LLC that would have gone to the debtor LLC member. Second, the creditor can seek to foreclose on the LLC and recoup its losses from the assets sold.

Fortunately, Florida’s laws do not allow a creditor to foreclose on a multi-member LLC. Furthermore, Florida does not allow a creditor to participate in managing the company. Creditors, therefore, cannot force a company to distribute income to the LLC member who is in debt, which means this method is often fruitless. Still, building protections into your LLC will help ensure the continuation of your business against many eventualities.

Single-Member LLC

The logic behind the LLC business structure depends on the idea that one member should not be punished for the deeds of another. Therefore, if one member accumulates personal debt to the point that creditors are pursuing him or her, the business won’t be affected because of it.

However, what about LLCs that only have a single member? When an LLC’s sole member comes up against creditors who want to be paid, those protections can go out the door. With no other members to protect, LLC law allows creditors to seek payment through whatever means necessary, including foreclosure on the business.

A Few Ways to Protect Yourself and Your LLC

When you decide to form an LLC, there are a few steps you can take to further that LLC liability protection, including:

  • Signing contracts
  • Separation of individual and business

When you sign a contract, if you are conducting business, you need to include your position within the company and the company name to convey that it is a business contract. This shows that you are signing the contract on behalf of the company and not as an individual, which makes it less likely for creditors to pursue you personally.

One way that creditors can seek repayment is by attempting to show a lack of separation between individual and business. The courts might side with them if there is little or no separation. It’s important, for this reason, to never use company funds, for example, to pay for personal purchases, and vice versa.

The good news is, with expert legal counsel, you can avoid a bad outcome for yourself and your business. Ask us to evaluate your LLC to make sure you have the right measures in place for liability protection. Contact us today for a no obligation consultation. Se habla español. 305-858-4512

By | 2017-10-12T20:01:35+00:00 October 17th, 2017|Uncategorized|0 Comments

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