Rob Jackson recently gave a presentation to the Florida School Board Attorneys Association on Cyber Security and the Florida Data Breach Law.
This is a rapidly growing area of legal and business risk in today's world. Please reach out the the lawyers at Hand Arendall Harrison Sale if you have any questions about your legal obligations in a data breach, or how to better prepare your business for cyber security attacks.
One of the most important and confusing aspects of starting a business is deciding what type entity to form. For many, a limited liability company (LLC) is an attractive option. LLCs offer flexibility in business structure, lack of corporate formalities, tax advantages, and limited liability. However, when this liability is limited can confuse even the most savvy business owner.
When can LLC creditors reach your personal assets?
Traditionally, limited liability meant that an LLC’s creditors could not reach the personal assets of the LLC’s members and vice versa. Generally, a creditor of the LLC can only collect the debt from the assets owned by the LLC. Thus, the LLC’s liability is limited to its own assets. This is referred to as “inside liability.”
For example, assume ABC, LLC, owes Vendor X $10,000 for supplies purchased by ABC. Assume ABC only owns tools, equipment, and office supplies worth $5,000. If Vendor X obtains a judgment against ABC and attempts to collect on this debt, it can only reach the tools, equipment, and office supplies owned by ABC. The personal assets, such as a boats or vacation homes, of ABC’s members are safe from Vendor X’s collection efforts.
When can an LLC member’s personal creditors reach the LLC assets?
Another common problem occurs when an LLC member defaults on personal debts and has a judgment entered against him or her individually. What happens if this judgment creditor wants to go after the LLC? Fortunately, Florida Statutes limit a judgment creditor’s exclusive tool for reaching LLC assets to a “charging order.” A charging order is essentially a lien on a member’s LLC share, giving creditors the ability to attach that member’s distributions from the LLC. The inability to reach the LLC’s actual assets for purposes of satisfying the member’s personal debt(s) is referred to as “outside liability.”
Returning to the example above, assume that First Bank is granted a judgment of $10,000 against Mark Member, a member with a 25% stake in ABC, LLC. ABC has done very well and now owns multiple stores and a fleet of company trucks. As a judgment creditor, First Bank can obtain a charging order (via appropriate motion with the court and corresponding order from the judge) against Mark’s 25% ownership interest in ABC. Then, whenever ABC makes a distribution of the profits to the members, First Bank will be entitled to Mark’s distribution to the extent necessary to satisfy the judgment. The hard assets of ABC are safe within the LLC, as are the other members’ profit distributions issued by the LLC. However, this protection from outside liability is limited depending upon the structure of your LLC, as further discussed below.
It’s Dangerous to Go Alone
One of the first decisions in forming an LLC is the number of members in the LLC. Many business owners enjoy the flexibility of operating alone, as a single-member LLC. However, a single-member LLC is robbed of most of the liability protection discussed above.
In 2010, the Florida Supreme Court ruled in a landmark case that single-member LLCs are not protected from outside liability. This allows a member’s judgment creditors to reach into the LLC to collect against the assets owned by the LLC. The Florida Statutes were later amended to reflect this decision. Therefore, a creditor with a judgment against the single-member LLC’s principal can now foreclose on the LLC and force the sale of the member’s interest in the LLC. For a single member this could mean a total loss of your business. However, for multi-member LLCs, protection from outside liability still applies and a charging order remains the sole remedy available to outside judgment creditors. This was just upheld last month by the Fourth DCA in Young v. Wear It’s At, LLC, ___ So.3d ____, 39 Fla. L. Weekly D1268b (Fla. 4th DCA 2014).
Accordingly, LLC formation can be complicated and stressful for new business owners, especially in light of the recent changes to the Florida Limited Liability Company Act that took effect earlier this year (see Andrew Levy’s February 10th blog post). Proper planning in the early stages can be vital to managing your future successes and minimizing your potential setbacks. We are here to help.
Business Startup 101 will be more than the basics
The Business Innovation Center on Florida State University's Panama City Campus is hosting a three hour event open to all regional entrepreneurs on Tuesday, April 8, titled "Business Startup 101." The event begins at 3:00 p.m. and will be held in the Summit Conference Room at the Advanced Technology Center at Gulf Coast State College.
Topics will include facets of Intellectual Property such as patents, trademark and copyright issues, protecting trade secrets and offer a question and answer session. Speakers include Travis Perry founding entrepreneur of ChordBuddy and a contestant on ABC’s Shark Tank, local attorney, Andrew Levy, partner at Harrison Sale McCloy, and Orlando based, Terry Sanks, partner at Beusse Wolter Sanks Mora & Maire.
“Having an idea and turning it into a business is exciting,” said Pamela Kidwell, Executive Director of the Business Innovation Center. “Business Startup 101 will give entrepreneurs insight to the tools and intellectual property protection needed for innovative success.”
Levy, who specializes in corporate and commercial law, will talk about business basics. Levy brings significant practical commercial experience and serves as legal counsel for a number of businesses operating within the Florida Panhandle and nationwide.
“Innovators with new ideas are bringing business to Northwest Florida, and we feel the region offers the appropriate business climate for not only the commercialization of new intellectual property but also the expansion of existing businesses,” according to Levy, “With our diverse base of intellectual capital rooted in our educational, military and commercial institutions, it is a prime time and ideal marketplace to host this event.”
Sanks will add a general overview of the world of patent law. He is experienced in the preparation and prosecution of patent applications for a variety of inventions primarily dealing with electrical, electromechanical and mechanical technologies, software-based, business methods and e-commerce.
Travis has one of the most successful products ever featured on the popular television series, Shark Tank. When Travis entered the Shark Tank, he was ready to negotiate. He will share his tips and tricks in preparing for the big pitch and the importance of protecting your idea. The “How To” in the Shark Tank will be revealed.
Event planners point out this event is for the entrepreneur with a new idea, as well as, seasoned CEO’s and COO’s who have had great ideas and brought them to fruition. Business Startup 101 is the place to search out the next steps in developing a plan and perhaps reviewing an investment. For more information about the event call the Business Innovation Center at 850.770.2451 or visit http://www.bicpc.com/Events.aspx.