Advantage of Incorporating a Single Member LLC
in a State Like Delaware or Wyoming?

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Do the owners of an LLC (the "members") enjoy more liability protection by incorporating in states like Delaware or Wyoming as opposed to incorporating in Florida

• SHORT ANSWER:  "Maybe".  For LLCs that have MORE than one member incorporating in Forida offers the same amount of liability protection as incorporating in states like Delaware and Wyoming.  For an LLC that has only ONE MEMBER, however, incorporating in a state like Delaware or Wyoming offers some additional protection

Overview of Potential Liability

• PROTECTING A MEMBER FROM CREDITORS OF THE COMPANY:  All LLCs incorporated in either Delaware/Wyoming and Florida provide the same level of protection from the most common type of liability, namely, where the debt is owed by the company and the creditor then tries to "pierce the corporate veil" by having the courts seize the personal assets of the company's members.  The members are equally protected in both kinds of states.




• PROTECTING THE COMPANY FROM CREDITORS OF A MEMBER :  But what if the creditor gets a judgment NOT against the company BUT against the member on account of some personal debt that is owed





• QUESTION:


• Would a creditor of a member be able to use the courts to seize that member's ownership interest in the LLC and, thus, gain direct control over the LLC and its assets?


• ANSWER TO QUESTION:


• MULTI-MEMBER LLCs:  "NO".  In both Florida and Delaware/Wyoming the courts will NOT allow the seizure of a member's LLC membership interests when the LLC has multiple members.  The sole remedy for the creditor would be to get the court to issue a "charging order" seizing any funds that might be distributed by the LLC to the member.


• SINGLE-MEMBER LLCs  "MAYBE".  The treatment of single member LLCs is different. Unlike Delaware or Wyoming, Florida treats membership interests in a single member LLC as if it were stock in a corporation.  This means that the membership interest can be seized by the courts to satisfy a debt owed by the member to a creditor of that member (along with the other assets owned by the member).


• SOLUTION


• Either incorporate a multi-member LLC in Florida or incorporate a single member LLC in Wyoming (which is less expensive and less complicated that incorporting in Delaware) and then register that LLC in Florida as a "foreign entity").


• REGISTERING IN FLORIDA AS A "FOREIGN ENTITY". If the Delaware (or Wyoming) LLC wanted to do business in Florida it would also have to separately pay to register as a "foreign" entity with the Florida Department of State


• The above solution is more urgent if the LLC will be holding title to real estate (because if a creditor of an LLC's member was actually about to seize the membership interest it might not be practical to quickly deed the real estate to another entity and thus prevent it from falling into the hands of the creditor)

MORE INFORMATION


• Article about Wyoming LLCs - practical information about how to do it.
• How to incorporate a Wyoming LLC