Single Member LLC's

Several states (including Florida) provide statutory creditor protection to single member LLCs. Such protections limit the legal remedies available to creditors attempting to attach equity in the LLC. Creditors are restricted to pursuing only the legal remedy known as a “charging order” against the debtor’s interest in the LLC. The charging order remedy generally limits the creditor to LLC distributions. The creditor may not therefore generally attach voting rights or force liquidation of the LLC.

The U.S. Bankruptcy Court has, however, apparently compromised the charging order protection for single member LLCs. The Court stated that a bankruptcy trustee may transfer the interest of the single bankrupt member and therefore liquidate the assets of the LLC to pay the debts of the member.

The Bankruptcy Court based its decision to disregard state statutory protections of the single member LLC on a historical partnership principle. The court determined that the charging order was historically established to protect the partnership and partners other than the debtor. In other words, the partnership charging order protection was implemented to shield partnership assets and the other non-debtor partners. In so ruling, the court negated the state charging order protections over solo LLCs in the bankruptcy context. The bankruptcy court therefore apparently invalidated state protections afforded single member LCCs (at least for bankruptcy purposes) even though the applicable state statutes specifically entitle single member LLCs to charging order protection.

In light of the bankruptcy court’s decision, most practitioners now recommend that LLCs have more than one member to improve the likelihood of charging order protection. - Gary A. Forster, Attorney at Law

Gary Forster is a Florida native practicing in all areas of business transactions, personal planning and tax matters, both domestic and international. Gary handles a variety of corporate, personal and tax planning matters, ranging from wealth protection and corporate structuring to complex business reorganizations. Mr. Forster has designed and drafted hundreds of asset protection plans involving domestic and foreign corporate and trust structures. Gary is a member of both the Florida Bar (admitted October 8, 1993) and District of Columbia Bars (admitted February 6, 1995), including bar sections for international and tax law. Gary is also a member of the U.S. Tax Court. Gary earned an undergraduate degree from Tufts University in 1990, graduating cum laude, with majors in Spanish Literature and Economics. Gary graduated from law school at the University of Florida in 1993 with honors. Gary earned the Masters in Taxation degree in 1994 from the University of Florida where he was a graduate fellow. Mr. Forster writes and lectures frequently on international tax, corporate law and asset protection issues. Gary speaks Spanish fluently.

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