LLC Protection for Members' Personal Debt in Florida

Florida gives judgment creditors limited options when enforcing personal debt against an LLC member. The rules are different between multi-member and single-member LLCs.

By , J.D. USC Gould School of Law
Updated by Amanda Hayes, Attorney University of North Carolina School of Law
Updated 7/03/2024

When you have personal debt, creditors can take actions to collect that debt such as garnishing your wages or sometimes seizing your personal property. When you own a limited liability company (LLC) and have personal debt, your interest in your company—and your Florida LLC itself—can be at risk. Florida's LLC laws are relatively debtor-friendly.

However, unlike most states, Florida treats creditors of a single-member LLC (SMLLC) differently than creditors of multi-member LLCs. SMLLC owners receive much less protection from personal creditors than owners of multi-member LLCs.

Let's dive into Florida's LLC laws regarding LLC member protection.

General Rule: LLC Isn't Liable for Members' Personal Debts

In general, states, including Florida, treat LLCs as separate entities from their owners. Accordingly, any money in the LLC's bank account or any property under the LLC's name is company property alone. LLC members don't have any ownership rights to that property. As a result, the personal creditors of LLC members generally can't take the LLC's money or property to satisfy the member's debt.

On the other side, LLC members are protected from the LLC's debts. An LLC provides its members with personal liability protection from the company's business debts, meaning that the LLC's creditors can't usually come after the members to pay a debt. In addition, LLC members—and the LLC itself—are protected from other member's personal debts that are unrelated to the LLC's business.

The separation between LLCs and their owners is one of the key reasons people decide to create an LLC. For example, if a member personally files for bankruptcy, the LLC's assets will be safe. And, if the owners decide to file for small business bankruptcy on behalf of the LLC, the member's personal assets will typically be safe.

However, the rules can change when the LLC has only one member. The separation between the LLC and the sole member becomes less distinctive and some personal liability protections become weaker when compared to multi-member LLCs. We'll explain the difference between multi-member and single-member LLCs below.

General Protections of Florida LLC Members

When you personally owe a debt, creditors can get a judgment against you for that debt. When a creditor gets the court to order you to pay a debt, the creditor becomes a "judgment creditor." Florida's LLC laws lay out what a judgment creditor can take from you and your Florida LLC.

When you owe a debt and are an LLC member, you should generally consider three actions the judgment creditor can potentially take against you:

  • The judgment creditor gets a court to order the LLC to pay the creditor any LLC distributions meant for you (called a "charging order").
  • The judgment creditor takes over your financial rights and interest in the LLC (called "foreclosure"), meaning they have full rights in your LLC distributions and in your share of the LLC's assets if the LLC dissolves.
  • The judgment creditor forces the LLC to dissolve and collects the judgment from the LLC's assets.

The level of protection for LLC members depends on the number of owners. As mentioned earlier, Florida makes a distinction between multi-member LLCs and SMLLCs.

Protections for Members of Florida Multi-Member LLCs

In Florida, creditors of multi-member LLCs are limited to charging orders as the sole and exclusive remedy to collect a member's personal debt. In other words, judgment creditors can't foreclose on a member's financial interest or force the LLC to dissolve to collect the money owed to them by the LLC member. (Fla. Stat. § 605.0503 (2024).)

Protections for Members of Florida Single-Member LLCs

The protections for members of Florida SMLLCs are less favorable. In Florida, creditors of members of SMLLCs aren't limited to charging orders. If a charging order isn't sufficient, the creditor of the sole member of an SMLLC can also ask the court to order the sale of the member's LLC interest. However, Florida's LLC laws don't explicitly allow a judgment creditor to petition the court to dissolve the SMLLC. (Fla. Stat. § 605.0503 (2024).)

Charging Orders Allowed for All Florida LLCs

As mentioned earlier, creditors of both multi-member and single-member LLCs can obtain a charging order to collect on a member's personal debt.

In this legal process, a judgment creditor asks the court to issue a charging order against the indebted member's LLC. A charging order directs the LLC to pay to the creditor any distributions of income or profit that would otherwise be distributed to the indebted LLC member. Like most states, creditors with a charging order in Florida only obtain the indebted member's financial rights and can't participate in the LLC's management.

Because a judgment creditor with a charging order can't participate in the LLC's management, they also can't:

  • order the LLC to make a distribution, or
  • order the LLC to be sold to pay off the debt.

As a result, creditors who obtain charging orders against LLCs often end up with nothing because they can't order the LLC to make any distributions and the LLC can choose not to make any.

While a charging order doesn't guarantee payment for a creditor, it's not necessarily toothless. The existence of a charging order can make it difficult or impossible for the indebted LLC member or the other members (if any) to take money out of the company's account without paying the judgment creditor first. To avoid this problem, the indebted LLC member and their fellow LLC members might try to settle (pay off) the debt. Of course, whether and to what extent a charging order will result in payment of all or part of a debt depends on the individual circumstances.

Example of Charging Order Against Multi-Member LLC

For example, suppose Blanche, Dorothy, and Rose own a Florida LLC for their crocheting business. Over the next few months, Blanche takes on $20,000 in debt on her personal credit cards. When Blanche doesn't pay the overdue charges, her accounts are turned over to a debt collection agency. The agency goes to court and obtains a $20,000 judgment against Blanche. However, the collection agency is limited to Blanche's personal assets and can't take money or property owned by the LLC.

Seeing that Blanche doesn't have many personal assets of value, the collection agency gets a charging order against the LLC to try to collect the debt. The court orders the LLC to pay out any of Blanche's distributions from the LLC to the collection agency. As a result, Blanche, Dorothy, and Rose decide not to make any distributions from the LLC until Blanche settles her personal debt. Therefore, the collection agency doesn't get any payouts from the LLC as a result of the charging order.

Charging Orders for Single-Member LLCs in Florida

The process of obtaining a charging order is the same between a multi-member and single-member LLC. In both cases, the charging order is against the LLC. However, with an SMLLC, the charging order is effectively against the indebted member because they're the only person who profits from the LLC and who makes decisions about the LLC's management.

The sole member of an SMLLC that has a charging order will have to choose between:

  • not cashing in on any of the LLC's profits, and
  • not paying their creditor.

The indebted SMLLC member doesn't have other members to help bail them out of the debt or pressure them to settle the debt. If the sole member depends on the LLC distributions for income, they'll likely be more motivated to pay the creditor back either out of the LLC distributions or out of their other personal assets. If the LLC member doesn't depend on the SMLLC distributions for their livelihood, then the creditor will likely see nothing come from the charging order.

Multi-Member LLCs: Foreclosure Not Allowed

Florida's LLC law says that the charging order is the only legal procedure that personal creditors of a Florida LLC with more than one member can use to get at their LLC ownership interest. Thus, unlike some other states, Florida doesn't allow the personal creditors of a member of an LLC with multiple owners to:

  • foreclose on that owner's LLC ownership interest, or
  • get a court to issue a turnover requiring the indebted member to transfer their entire LLC interest to the creditor to satisfy the judgment.

These protections make Florida a particularly friendly state for people who want to form multi-member LLCs to protect assets from personal creditors.

Single-Member LLCs: Foreclosure Allowed

Typically, states often limit judgment creditors to charging orders to protect the interests of the other LLC members. The rationale is that it wouldn't be fair to cause the other LLC members to suffer because one member incurred a personal debt that has nothing to do with the LLC. So, many states don't allow personal creditors to take over an indebted member's interest and join in the management of the LLC or to have the LLC dissolved and its assets sold without the other members' consent. However, this rationale arguably disappears when an LLC has only one member.

Unlike other states, Florida makes a clear distinction in its LLC laws between LLCs with one member and LLCs with more than one member. Florida's laws provide that a charging order isn't the only remedy a judgment creditor can use against an SMLLC owner.

If a judgment creditor successfully argues to a court that distributions under a charging order won't satisfy the judgment within a reasonable time, the court can order the sale of the sole member's interest in the SMLLC in a foreclosure sale. In fact, a judgment creditor can apply for a foreclosure sale at the same time they apply for a charging order. (Fla. Stat. § 605.0503 (2024).)

In a foreclosure sale, the purchaser of the indebted member's interest in the SMLLC will:

  • obtain the member's entire SMLLC interest (not just the financial rights), and
  • become a member of the SMLLC.

Once the indebted member's LLC interest is sold, that indebted member is no longer a member of the SMLLC. The purchaser becomes the new full member of the SMLLC and can proceed with the company as they see fit. Because the judgment creditor is likely to be the purchaser, the judgment creditor will take over the indebted member's role in the SMLLC. (Fla. Stat. § 605.0503 (2024).)

In effect, the purchaser becomes the new sole owner of the SMLLC and can do whatever they want with the company, including dissolving it or selling its assets. As a result, judgment creditors of owners of Florida SMLLCs have a very powerful remedy to collect their judgments. For example, the threat of a foreclosure sale could encourage the indebted member of an SMLLC to settle the debt with the judgment creditor before the sale can happen.

Judicial Dissolution Not Explicitly Allowed for Florida LLCs

In some less debtor-friendly states, judgment creditors can ask a court to dissolve an LLC to recover a personal debt from one of the LLC's members. This remedy is one of the more extreme options to deal with an LLC member's personal debt and isn't very common.

Florida doesn't explicitly allow a judgment creditor to have an LLC dissolved by a court to settle a personal debt. However, it's possible for a judgment creditor to dissolve an LLC if they purchase the membership interest of a sole owner of an SMLLC in a foreclosure sale. In that scenario, the judgment creditor becomes the new sole member of the SMLLC and can choose to dissolve the LLC.

Protecting Your Single-Member LLC

Florida's limited protections for SMLLC members make it one of the least attractive states to form an SMLLC. If you want to increase your liability protections as an LLC member, you could add another member to your LLC or form your LLC in another state.

Consider Forming or Converting to a Multi-Member LLC

To avoid the application of Florida's SMLLC rules and obtain the fullest limited liability possible, a Florida LLC should have at least two members. The second member can be a spouse or relative as long as that person is treated as a legitimate co-owner of the LLC.

For example, a legitimate co-owner of a business usually:

  • pays a fair market value for the LLC interest they acquire
  • receives financial statements
  • participates in some level of decision-making, and
  • receives a share of the LLC profits equal to the membership percentage owned.

If you want to add another member to your LLC but retain control of the company's daily operations, you can set up a manager-managed LLC and name yourself as the sole manager. In a manager-managed LLC, the manager makes the operational decisions for the LLC while the non-manager members take a passive role and don't get directly involved in the business. You can define these member and manager roles in your LLC's operating agreement.

Forming Your LLC in Another State

Alternatively, you could form your SMLLC in a state other than Florida that has more debtor-friendly LLC laws. You don't have to form your SMLLC in Florida even if it's the state where you live, do business, or own property. However, there's no guarantee that Florida courts (or other state courts) will always apply the law of the state where you formed your SMLLC, rather than the less favorable Florida LLC law.

Moreover, forming your SMLLC outside Florida will increase your costs. You'll be responsible for paying both the fees:

You'll also likely be responsible for paying taxes and maintenance fees in both states. You should consult an experienced business lawyer in Florida for more information.

More Information on Florida LLCs and Liability Protection

As a Florida LLC owner, you'll want to be aware of your legal obligations, including your company's ongoing legal requirements. For more tips and guidance on running your LLC, check out our articles about:

You should also check out our section on LLCs and asset protection. This section has articles on strategies to strengthen your LLC's asset protection and when you might be personally liable for LLC debts.

If you need additional legal guidance or have questions specific to your situation, talk to a Florida business attorney. They can answer questions specific to your legal situation and help you develop a plan to tackle your personal debt and protect your business.

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