Legal Note – Choosing The Right LLC

All fifty states and several foreign jurisdictions have passed LLC organizational statutes. The protections available, however, vary dramatically from state to state (and country to country).

As discussed in prior legal notes, LLCs generally insulate owners (known as “members”) from company liabilities through “inside” asset protection (similar to corporations). Certain states (and countries) offer a second “outside” protection (not offered by corporations). “Outside” LLC protection limits a creditor of a member to a “charging order.” The charging order entitles the creditor (suing to acquire LLC equity) only to distributions associated with the LLC interest. The outside asset protection (if properly implemented) therefore generally eliminates involuntary equity transfers.

Although several states offer highly protective LLCs, other state statutes actually permit attachment and foreclosure of LLC interests. Only if the right state (or foreign) statute is chosen (and properly implemented) will LLC equity be placed beyond the reach of creditors. To understand the differences between the state statutes, one must understand the origins of the law adopted by the respective states. Next month we will provide some historical detail on the more debtor friendly “charging order” jurisdictions.

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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