The New LLC Statute Passes: Legislature: The Olmstead Panic Is Over
They fixed the LLC statute. I had wrote a post in March about legislation introduced in the Florida legislature to clean up the effect of the Olmstead decision and creditors' rights against a debtor's LLC membership interest.. The legislation passed both legislative chambers almost unanimously and awaits the governor’s signature.
You can read the bill yourself, but here is a summary. Florida’s LLC law now makes clear distinctions between single and multi-member LLCs. A creditor can use the full array of creditor tools to attack a debtor’s interest in a single member LLC, including without limitation, foreclosure and levy. And, if the creditor does take over the debtor’s single member LLC interest the creditor becomes a substituted member and the debtor is no longer a member. The purchaser of a single member LLC at a foreclosure sale likewise steps in the debtor’s LLC shoes.
The bill clearly states that the charging order is the exclusive remedy against a debtor’s interest in a multi-member LLC. The bill states that foreclosure of the multi-member interest is not an option.
Of course, the question on everyone’s (blog readers) mind is: “what makes an LLC a ‘multi-member’ LLC?” “Is one percent ownership enough?” The answer is : “nobody knows for sure.” The bill does not define a multi-member LLC other than state that a multi-member LLC is an LLC with more than one member.
I expect that sooner or later a creditor will challenge an LLC with a “ nominal” second member, such as a non-debtor spouse with a 1% interest. In my opinion, a small second interest member meets the definition of a multi-member LLC as long as the second member gave consideration for the interest. Consideration is clearest if a one percent member paid one percent of the initial capital or bought its interest for one percent for fair value, but consideration can also be for services rendered.
