All too often, an unexpected personal disaster can lead to financial problems. When faced with that situation, you may wonder how to best protect your business assets from personal debts you may owe to third parties. Your choice of business entity structure makes a huge difference in whether your personal creditors can collect debts from your business assets.
A Boca Raton asset protection lawyer at Kramer Green can answer your questions, calm your concerns, and work to develop the best means of asset protection for you, your family, and your business. We are here to assist you in protecting your valuable assets from the reach of creditors to the greatest extent possible.
Sole Proprietorships
Your choice of legal entity for your business can determine whether your personal creditors can reach your business assets. For example, many small businesses operate as sole proprietorships with only one owner. Under Florida law, a sole proprietorship is not a legal or separate entity like a limited liability company (LLC) or a corporation. Therefore, the owner of the sole proprietorship is responsible for any taxes on their business income and any business debts. Likewise, if the owner has personal debts, creditors can pursue the owner’s business assets to get those debts paid since there is no division between the owner’s personal and business assets.
Limited Liability Companies
In contrast, a limited liability company (LLC) is a separate legal entity that one or more persons can own. LLCs provide a flexible and easily maintained business structure that insulates personal assets against business creditors. However, the LLC will protect business assets only if it is a multi-member LLC. Although an owner’s individual assets are at risk to creditors, a creditor cannot reach an owner’s interest in a multi-member LLC or any of the LLC assets, unless there is a distribution from the LLC. In effect, the creditor can intercept LLC assets (usually cash) that the debtor-member would have received from the distribution.
On the other hand, Florida law permits judgment creditors to foreclose upon and use other collection remedies against a single-member LLC in some cases. Suppose the judgment creditor can demonstrate that a charging lien on the single-member LLC interest will not satisfy the judgment in a reasonable time. In that case, the judge may permit the creditor to collect the debt from the LLC assets. For this reason, a multi-member LLC is preferable to a single-member LLC.
Limited Partnerships
Likewise, a limited partnership (LP), which requires two or more partners by definition, can effectively protect your business assets from personal creditors. A judgment against an individual who is a limited partner will not result in the creditor being able to reach the individual’s LP interest or partnership assets. Again, the judgment creditor’s sole remedy is a charging lien against the LP interest.
Corporations
Similarly, conducting a business as a corporation is another way to protect your business assets from your personal creditors and your personal assets from your business creditors. Operating your business as a corporation may be a more secure way to protect your business assets. Still, a corporation requires a fair amount of paperwork and maintenance to operate properly. There are circumstances in which personal creditors can “pierce the corporate veil” and reach business assets, but those situations are rare and avoidable if you maintain your business as a wholly separate corporate entity from your personal finances. However, your stock interest in the corporation could be seized by a personal creditor.
Allow Us to Help You Protect Your Business Assets Today
An Aventura asset protection attorney at Kramer, Green, Zuckerman, Greene & Buchsbaum, P.A. can help you with the most effective steps in the asset protection process. Contact our office today at (954) 966-2112 or reach out to us online to schedule a time to discuss your legal issues with our attorneys.