Who Can Be That Second Member for Your Florida LLC; Basic LLC Checklist
As most attorneys know, a Florida LLC needs to be multi-member so members are afforded the highest protection. This is the result of recent state legislation which has clarified a charging order is the exclusive remedy against a multi-member LLC, but not against a single member LLC. For more background on the new LLC law, see our past reports, Beware of Single Member LLC’s; Olmstead Patch Bill Signed by Governor; and 4 Take-Away Points To Know Under Florida’s New LLC Law.
This raises the question, if the LLC should be multi-member, who are good candidates for additional members? If a person is married, the obvious candidate may be the spouse. However, if the spouse is not a good option, or if the client is single, it may be advisable to consider a Children’s Trust, Grandchildren’s Trust, or life insurance trust as the second member.
Such trusts would typically be structured as irrevocable grantor trusts.
The question then arises how much interest must be held by the second member. While the law and courts are silent on this issue, we recommend 5-10% as a minimal interest.
Note: In light of the recent case Well Fargo Bank v. Barber, 2015 U.S. Dist. Lexis 13488 (M.D. Fla. Feb. 4, 2015), it is important, in addition to having a well drafted Operating Agreement for the LLC, that all membership interests be properly certificated. This means that each member should have a Membership Certificate (similar to a stock certificate) stating how many units the member owns in the LLC.Basic LLC Checklist
We have examined numerous LLC’s established by quick set up companies that charge about $500 and you receive a corporate book and Articles of Organization – which is a simple two page document. If you have such a company, it is essentially worthless. In addition to the Articles of Organization, you should have:
- An Operating Agreement that (a) recites the company is multi-member; (b) identifies the company as Manager-Managed; (c) includes Ehmann provisions making the agreement an executory contract; and (d) is executed by multiple members.
- Certificates for each member
- K-1’s issued to each member
- A partnership return filed on Form 1065
This is a bare-bones checklist – there are invariably numerous other issues to address to set up an LLC that provides strong protection. Do not try to set up a LLC by yourself or with a corporation you find on Google. You will only receive a false sense of protection. It is important to consult with an experienced Miami asset protection attorney. Jay Beskin and I are pleased to assist. Contact us at Rarick & Beskin, (305) 556-5209 or firstname.lastname@example.org.