By: Shobha Lizaso
When considering optimization of healthcare business operations it is important to remember Limited Liability Companies are fundamentally just partnerships with added liability protection. The LLC structure offers liability protection called charging order protection, which prevents your (or your partners’) personal creditors from seizing your business or its assets to settle personal debts. Since LLCs were designed to be partnerships, you are expected to adhere to some basic partnership rules – most importantly, you should have partners. Running an LLC with no partners opens you up to liability.
Florida’s LLC law was amended in 2014 to expand the liability risk of Single Member LLC (“SMLLC”) owners. The law provides that in addition to a judgment creditor’s ability to attain a charging order against a SMLLC owner, the creditor may obtain a court order that allows the SMLLC interest be sold at a foreclosure sale. Further, unlike in most states, the purchaser of the SMLLC interest at a foreclosure sale obtains the debtor-member’s entire SMLLC interest, not just the right to receive distributions. Effectively, the purchaser becomes the new sole owner of the SMLLC and can do whatever s/he wants with it, including dissolving it or selling its assets, and the debtor (original SMLLC owner) ceases to be a member of the LLC. This put creditors of owners of Florida SMLLCs in a very strong position to collect their judgments.
To avoid application of Florida’s SMLLC rules and obtain the fullest limited healthcare business operations liability possible, a Florida LLC should have at least two members. If the second owner is added merely on paper as a sham, the courts will likely treat the healthcare business operations LLC as a SMLLC and the potential liability lurks around the corner. To avoid this, the co-owner must pay fair market value for the interest acquired and otherwise be treated as a “real” LLC member–that is, receive financial statements, participate in decision making during day to day healthcare business operations, and receive a share of the LLC profits equal to the membership percentage owned. If you do not wish to share the ownership of your company with another person, a simple solution is to just convert your LLC to a corporation. Your attorney should be able to convert your SMLLC into a corporation in a matter of days so if you currently own a SMLLC, you should meet with your attorney to discuss these matters in greater detail.