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Florida Supreme Court Issued an Advisory Opinion for Single Member Limited Liability Companies (SMLLCs)

08/18/2010 - Kalis & Kleiman Blog - Link to This Entry

Recently, the Florida Supreme Court issued an advisory opinion which could be the deathknell for single member limited liability companies (SMLLCs). In Olmstead v. Federal Trade Commission, SC01-109 (Fla. June 24, 2010), the Court ruled that a charging order is not the exclusive remedy available to creditors of a member of an SMLLC.

Prior to this decision, creditors had no right to seize property titled in the name of a SMLLC to satisfy the debt of the member. Moreover, in a properly drafted SMLLC operating agreement, a judgment creditor had no right to vote or inspect. Creditors’ sole remedy was to apply for a charging lien on the distributions of cash or other property made from the SMLLC to the debtor. To circumvent the charging order, the manager only had to retain profits inside the SMLLC and make no distributions.

Olmstead now allows a court to order a debtor to surrender all right, title, and interest in the debtor’s SMLLC to satisfy an outstanding judgment. Even scarier, future court interpretations of the Olmstead case could permit alternative collection remedies against multi-member LLCs.

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