In Florida, like in most states, the general rule is that the money or property of a Florida limited liability company (“LLC”) cannot be taken by creditors to pay off the personal debts or liabilities of the LLC’s owners.

Example: Sarah, Eli, and Payton form an Florida LLC to sell scuba diving equipment. It turns out that Eli owes $10,000 to Jack, a former business partner, who sues him in court and obtains a judgment against him. While Jack can attempt to collect on his debt from Eli’s personal assets, he cannot take money or property owned by LLC to satisfy Jack’s personal debts. For example, he cannot get any of the money held in the LLC’s bank account.

However, there are other ways that creditors of an LLC owner might try to collect against the LLC for the owner’s debt. These include: 

1) obtaining a charging order requiring that the LLC pay the creditor all the money due from the LLC’s payments to the debtor-owner 

2) foreclosing on the debtor-owner’s LLC ownership interest, or

3) getting a court to order the LLC to be dissolved and all its assets sold.

State laws vary widely on what creditors are allowed to do so you need to check the laws of your state. This article covers what actions creditors in Florida are allowed to take against an LLC for an LLC owner’s personal debt.

Charging Order

Florida, like all states, permits personal creditors of an owner of an Florida LLC to obtain a charging order against the debtor-owner’s membership interest. A charging order is an order issued by a court directing an LLC’s manager to pay to the debtor-owner’s personal creditor any distributions of income or profits that would otherwise be distributed to the debtor-member. Like most states, creditors in Florida only obtain the owner-debtor’s “financial rights” with the charging order and cannot participate in the management of the LLC. Thus, the creditor cannot order the LLC to make a distribution subject to its charging order. Very frequently, creditors who obtain charging orders end up with nothing because they don’t have the right to order distributions. 

Example: Eli has only $500 in his bank account and no valuable personal property. The only thing of value he owns is his 33% interest in the successful scuba shop. However, Jack, his creditor, cannot just take over his LLC ownership interest or have it sold. All he can do is get a Florida court to issue a charging order. This means that any distributions of money or property the LLC would ordinarily make to Jack must be given to Jack instead until the entire $10,000 debt is paid. However, if there are no distributions there will be no payments.  

Foreclosure and Dissolution

Florida’s LLC law says that the charging order is the only legal procedure that personal creditors of Florida LLC members can use to get at a debtor’s LLC ownership interest. Thus, unlike some other states, Florida does not permit an LLC owner’s personal creditors to foreclose on the owner’s LLC ownership interest or get a court to order the LLC dissolved and its assets sold. This makes Florida a very friendly state for people who want to form LLCs to protect assets from personal creditors.

What About One-Member Florida LLCs?

The reason personal creditors of individual LLC owners are limited to a charging order or foreclosure is to protect the other members (owners) of the LLC. It doesn’t seem fair that they should suffer because a member incurred personal debts that had nothing to do with their LLC. Thus, personal creditors are not permitted to take over the debtor-member’s LLC interest and join in the management of the LLC, or have the LLC dissolved and its assets sold without the other members’ consent.

This rationale disappears when the LLC has only one member (owner). For this reason, Florida’s LLC law provides that a charging order is not the only remedy a personal creditor can use to collect a judgment against a singe-member Florida LLC. Instead, if the charging order proves ineffective, the creditor can ask the court to order that the LLC be sold in a foreclosure sale. Whoever purchases the LLC in a sale acquires all the former owner’s rights and becomes the new sole owner of the LLC.

Because of these rules, to obtain the limited liability described above, a Florida LLC should have at least two members. The second owner can be a spouse or relative.

To obtain the protection from liability afforded by an LLC, you must form the entity before you incur the debt or other liability. For more information, consult a business attorney. 

For more information on LLCs and the limited liability protections they offer, see Limited Liability Protection and LLCs: A 50-State Guide.