Single Member LLC vs Multi Member LLC Not A Clear Choice
Single member llc vs multi member llc? Which should you choose when you file your articles of organization with the state to form a limited liability company (LLC). This is one of the most important decisions you will make to get liability protection for yourself and your company.
Single member llc vs multi member llc may sound like an easy issue to address. Do you have “partners” in the business, or are you the only one doing the business? If you’re the only one, then obviously you’ll have a “single member LLC.” If you have partners you will have a multiple member LLC. Everything is easy – right?
Actually, if you are thinking of a single member LLC, you may want to think a little harder. The asset protection potential of a single member LLC is being eroded by state legislators and the courts. To understand the single member LLC vs multi member LLC discussions, you need to understand the asset protection potential an LLC offers.
An LLC has the potential of giving you basically double the asset protection a corporate structure can offer. The corporations give you the “corporate shield” protection that protects the officers, directors, and shareholders from liabilities incurred in the course of the corporation doing business. Either type of LLC will basically get the same “corporate shield” that a corporation will. By the way, the corporate protection is exactly, identically, the same in either an S corporation or a C corporation.
In addition, if your LLC is done properly, you can get not only the corporate shield protection but also what is called “charging order” protection. That protects the company and it’s assets from your personal liabilities.
I see more people lose their company through a personal disaster than I do people loose their personal assets to a business disaster. You get divorced, make bad real estate investments, are in an auto accident, or suffer any one of dozens of personal problems, and your business is suddenly at risk.
A corporate structure can’t give you any of this “charging order” protection. Many single member LLCs and most multi member LLC can give you the additional protection. Your attorney and internet LegalDoom sites have never even brought up the issue of protecting the company from your personal liabilities.
Single Member LLC vs Multi Member LLC – A Complete Discussion
For a full discussion on how to get double asset protection, get my eBook, How to Double Your Asset Protection.
The issue at hand is single member LLC vs multi member LLC. Because the concepts surrounding charging order protection grew out of a desire of the courts to protect the other “partners” in a business when one partner gets in trouble, the courts have reasoned that charging order protection shouldn’t apply to single member LLCs.
Specifically, the Supreme Court of Florida has struck down charging order protection, and Utah has actually passed legislation that removes charging order protection for single member LLCs. Also, Colorado Bankruptcy courts have set aside charging protection for single member LLCs where the single member is declaring bankruptcy personally.
The bottom line is single member LLCs are under attack in the court and legislators of a number of states, and the trend is to remove charging order protection from single member LLCs. When you are setting up your LLC, you may want to get another member so that the trend won’t affect you.