Single-Member Limited Liability Companies Under Attack

The Olmstead case recently decided by the Florida Supreme Court is cause for concern about liability protection afforded by single-member limited liability companies (LLC). In a very surprising decision, the Court ruled that a judgment creditor could take over the debtor’s interest in a single-member LLC to satisfy an outstanding judgment. This decision is contrary to the long-standing legal concept that LLCs provide liability protection for their owners.

In a strongly worded dissent, the minority justices expressed concern that this decision could impact multi-member LLCs as well. Since it appears that Courts would have a much more difficult time stretching this reasoning to a multi-member LLC, the possibility of adding an additional member and then limiting their right to participate in the operating agreement may be a good precautionary measure.

To our knowledge, there have been no Michigan cases reported on this subject. Also, keep in mind that this case does not change the “piercing of the company veil” concept which protects the personal assets of the member of the LLC against judgments obtained against the LLC, which in most cases is the bigger concern. Olmstead, in effect, is a reverse piercing of the veil where the creditor obtains a judgment against the member and then satisfies the judgment with assets from the LLC. We will keep you advised regarding any new developments in this area, particularly in Michigan.

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