Many people do not understand the difference between a boilerplate Florida LLC and a professionally prepared LLC. One key difference is your LLC “Operating Agreement” in Florida, because you need to have one prepared by a professional.
Quickie “do it yourself” LLCs, much like “self help DIY Florida estate plans“ are like the cheap shoes that you get at a discount store. As in most things, you get what you pay for.
How Sophisticated Investors Strategically Use LLCs
It is a fact that large companies and sophisticated real estate investors in Florida, and other states, seek to maximize their asset protection through using keenly analyzed legal documents. Common strategies used by experts in Florida include sophisticated “multi-tiered” Florida LLC planning and an extensive operating agreement that addresses all aspects of the company.
For sophisticated investors, a great deal of thought and preparation goes into setting up a proper legal strategy. For real estate and business holdings, the LLC is an essential tool for this purpose. The LLC Operating Agreement is central to the formation of any LLC because it regulates all aspects of the LLC.
So, it shouldn’t be surprising to learn that 90% of the protection of your LLC actually comes from the Operating Agreement and NOT the fact that that the LLC was filed in the state of Florida. Within the Florida Operating Agreement, there are numerous options available when it comes to defending your business against creditor attacks and I will highlight a few of the most important options.
Remember that membership interest is what the partners or shareholders in an LLC actually own and Managers are those with voting rights who control the decision making for the Company. Managers may be Managing Members or other individuals who are independently appointed by the Members.
This is not an exhaustive list and represents some key options that would not be considered in any boilerplate LLC. All of these provisions would become important if a creditor were trying to attach a lien or levy to your company or if a member filed bankruptcy and the trustee was attempting to attach to membership interest. These provisions would need to be expertly drafted by a competent professional such as yours truly so don’t try this at home…
1. You can require that a Manager or Managers may not be removed by a creditor.
2. You can require that no membership interest may be assigned to a creditor.
3. You can provide that the jurisdiction of the Company may be transferred upon vote of the members.
4. You can deny voting rights to creditors.
5. You can deny the partition or allocation of company assets to creditors or deny the Company from being forced into bankruptcy.
6. You can require mandatory capital contributions upon vote of the managers which could include a contribution by a creditor member.
It is only fair to point out that a creditor could challenge your LLC provisions and it would be up to the court to enforce them. That said, judges tend to seriously consider contractual provisions when they have been freely entered into by the LLC members. So, more often than not, the kinds of provisions that are designed to make a judgment creditor “less than comfortable” will be enforced unless they are a blatant violation of state laws.
Do you have the above creditor protection tools in your LLC tool box?
The above list is only the tip of the iceberg. Every Florida LLC should include an depth questionnaire to determine all aspects of how the entity will be governed. The goal for this article is to get you thinking beyond the boilerplate.
Also, in addition to creditor protection, there are numerous other considerations that may need to be included in your LLC Operating Agreement. Two of the most common other considerations are business succession planning in Florida which is a critical part of blending your business succession plan with your Florida estate plan.