As mentioned above, outside protection involves the LLC’s ability to protect itself from any wrongdoing by its members.
In Florida, the owners of an LLC are called Members. The LLC can either be a single-member LLC or a multi-member LLC. The Florida Revised Limited Liability Company Act (the “Act”) makes an important distinction between single-member LLC and multi-member LLC.
For multi-member LLC’s, the Act makes a charging order the sole and exclusive remedy for a creditor’s right against a member’s interest in an LLC. A charging order constitutes a lien upon the member’s transferable interest and requires the LLC to pay over the judgment creditor a distribution that would otherwise be paid to the member.
What does this mean? The charging order only allows the creditor to get distributions, losses, or creditors that the member was entitled. Therefore, if the LLC pays a distribution to the member, the creditor of the member would be entitled to that distribution, BUT the creditor will not be a part of the LLC or will be able to foreclose on the interest of the member.
The law protects the other members that were not involved in the wrongdoing and do not want an outside person who may not have any knowledge in the business to run the affairs of the company.
Compared to a multi-member LLC, a single-member LLC has far less protection in Florida. If the creditor can prove in court that the distribution under the charging order will not satisfy its judgment within a reasonable time, the court may allow the sale of the interest in the LLC in a foreclosure sale.
If the court is satisfied and orders a foreclosure sale, the purchaser becomes the new member of the LLC and you cease to be a member of the LLC.