If I have a Florida LLC owned by a single member Wyoming LLC, am I protected with charging order protecting through the Wyoming LLC. In other words will I be treated as an LLC and not a sole proprietorship?
Unfortunately, a 2010 Florida Supreme Court case (Olmstead v. Federal Trade Commission) found that the charging order limitation did not apply to single-member LLCs in Florida.
This means that any Florida single-member LLC is not treated by the court system like other LLCs, but instead like a sole proprietorship.
In a worst-case scenario, a creditor seeking repayment from a single-member LLC in Florida could seize control of the company, redirect distributions and liquidate assets until the debt is paid.
Thanks for the guidance BP Members!
Does the law apply to S-Corporations? You can change from LLC to S-Corp, maybe that is a way out of this problem?
You need a qualified attorney to answer this.
@Chad W. - I find your inquiry a bit confusing.
A charging order was, originally, a legal invention intended to protect partners in a partnership from losing their property if their partners went out and ran up a bunch of debt and wound up sued for it. So the charging order "charged" the debt against the one partner's interests in the partnership assets, so that when distributions were made, the judgment debtor's share weren't made to the defunct partner, but rather to the judgment creditor. More recently, when people have tried to hide behind charging order protections in single member LLCs, and then simply refuse to make distributions so that the creditor never gets paid, courts have seen that for what it is, a sham, and have refused to allow those protections to extend for obvious reasons.
The whole reason charging order limitations don't apply in the context of a single member LLC, is because there are no partners to protect, so the protection is unnecessary.
I'm not licensed in Florida, but I have brought many types of actions against various types of entities, and anytime there is an entity structure in place that would serve no purpose but to prevent a creditor from getting what's due to them, the veil can, and likely will, be pierced and a competent attorney will not only work their way up the ownership chain through various entities, but they'll eventually come after your personal assets too. Indeed, anytime I see layers of entities in the course of litigation, I see that as a huge red flag and double down to make sure I find assets wherever they exist, and most judges are pretty helpful in making this happen.
Nothing contained herein is legal advice, and in order to fully answer your question you'd need to hire counsel in both Wyoming and Florida.
Florida courts have ruled that single member LLC's are a disregarded entity in many legal matters.
@Chad W. , a couple of things for you to consider. Charging order protection is for the owner of the LLC not the LLC itself. In other words if the LLC is sued and loses the LLC assets are not protected. Now if you are sued personally and own an interest in an LLC the charging order issue might protect you depending on facts and the state law of where the property is. I would worry more about running your business right, keeping adequate insurance, and getting good deals. As to the issue of a Wyoming LLC being the owner it gets pretty complicated. Wyoming does recognize charging order protection for single member LLCs last I heard, but the law of the state where the suit or property is usually controls. Again there are a lot of moving parts, but only if the lawsuit goes against you or your WY LLC then goes backwards down the chain of ownership does it matter. Does this help you any?
By the way I really liked @Andrew A. 's answer, it was extremely good.
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