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Florida Asset Protection

Business Climate

Business Climate

LLCs, FLPs and Limited Partnerships

It is important to know where the limits of protection are in liability.  Many people think that because the form a company, the will be protected.  The exemptions listed in the sections under Florida on this site do not extend to LLCs (Limited Liability Companies) and Limited Partnerships.  The protection lies within the ability of an owner or interest membership within the LLC to the membership interest and proceeds from that interest (charging order).  Family Limited Partnerships fall under these same rules.

The Limited Partnership Act gives creditors a limited tool to seek recovery of a monetary judgment from an individual limited partner. Section 620.1703, Florida Statutes states that a partner’s creditor may apply for a charging lien against a limited partnership interest.  The Act maintains a clear distinction between a limited partner’s investment in the partnership and the partnership’s ownership of partnership property. A creditor of a partner has no right to seize property within the partnership to satisfy the debt of any one limited partner.  This is protection of the other partners.

The Limited Partnership has two classes of partners, the limited partner(s) and the general partner(s).  The general partner bears the liability for all of the limited partners.  The protection from this liability lies in the Limited Partnership Act. Florida Statures provide that a general partner can elect to be a limited liability limited partner in which event the general partner is protected from personal liability for partnership acts or omissions.

In the case of the FLP, the Family Limited Partnership the parents typically own almost all of the limited partnership investment interests, but they typically gift interests to their heirs over time. In addition to its asset protection benefits, an FLP offers estate planning benefits because the IRS discounts the taxable value of limited partnership interest for gift and estate taxation.

Revenue Ruling (Rev. Rul. 77-137) suggests that where a creditor has a charging order lien on a limited partnership interest, and the general partner does not distribute partnership income, the creditor, not the debtor limited partner, is responsible to pay the tax on the allocated income. This in essence makes a charging order lien a “poison pill” whereby the creditor of the limited partner receives no money from distributions, but incurs tax liability.

Single Owner Business – Sole Proprietor

Single owner businesses receive several challenges.  The business owner should make regular distributions to themselves rather then just deduct expenses or withdraw when they need money.  The owner should write themselves a written agreement with the business entity.  This way it is more difficult for a Florida court to challenge the salary exemption.