Hi, this is Lee Phillips.
I'm an attorney.
I want to talk to you for two seconds about the choice
you'll make when you create an LLC between a single member LLC
and a multiple member LLC, one owner, multiple owners.
I'm going to come down in favor of the multiple member LLC.
Let me explain why.
First of all, you have to understand
that an LLC has two aspects to its asset protection.
It has a corporate shield, which protects you from what
happens out in the company.
Additionally, something a corporation doesn't have,
it has what we call charging order protection, which
protects the assets of the company from what
happens to you.
56% of all bankruptcies in the United States
are a result of somebody in the family getting sick.
The question is, are you going to lose
the piece of real estate that's in this LLC,
or the assets that are in the LLC?
In many states now, if you have a single member LLC,
the answer is yes.
Charging orders were originally created--
and I'm going to refer you to the other videos
that I have on charging order protection so that you really
understand the reasons and the history--
but they were created to protect not the one member or the one
partner.
They were created to protect the other partners
so that if this guy lost his interest, the rest of the folks
were impacted.
So the case starts in Colorado, 14, 15 years ago,
case called Albright.
Mr. Albright declares bankruptcy.
The bankruptcy court in Colorado says,
only one member, no other members to protect,
so we're going to set aside the LLC and we're going to say,
Mr Albright's creditors, you just
go get those assets in the LLC to satisfy your judgment.
Now in theory, you can't do that with a charging order,
and an LLC has charging order protection.
In fact, the Uniform LLCs Act says
the only remedy to a creditor is a charging order.
There was then a case in Florida,
Mr. Olmsted, dirty dude, embezzles tens of millions
of dollars.
The government gets a judgment against him,
and he sticks his tongue out and say, you can't get,
it's in an LLC, go get me a charging order.
You can't come and get that money directly.
And the Supreme Court in Florida said, I don't think so.
Let me think.
This charging order stuff, it was originally
to protect the other members, other partners.
Mr. Olmsted, you don't have any other partners.
We're coming against that LLC, we're going to take its assets.
We don't care about the charging order protection
stuff in the Uniform LLC Act.
So the Supreme Court in Florida just
set aside the charging order protection for a single member
LLC.
Now that doesn't mean, if you're single member LLC,
that you still don't have the corporate shield,
but you don't have this charging order protection.
Utah has actually passed a law.
We've got Idaho.
We've got, I think it's Maryland.
We've got the Ninth Circuit in the southwest states,
California, Oregon, Washington, all up and down southwest
that their bankruptcy divisions has said,
hey, you file bankruptcy in the Ninth Circuit,
you've got a single member LLC, we're giving the creditor
all the assets in the LLC, we don't
care about charging order protection.
So maybe it would be a good idea to have multiple members
in your LLC, multiple owners.
How much to give another guy to make him a multiple owner.
Well, that's up for debate.
But the courts are starting to trend towards,
you only gave the guy 1%, he doesn't ever get any money out
of the LLC, he doesn't participate
in any of the management, I don't think so.
He's not a real owner.
I'm think if you give the guy 5%,
and this has nothing to do with anything,
but the IRS as, if you have a 5% interest in a company,
you're not probably just a minor investor.
You've got a significant interest in that company.
So if you give somebody a 5% interest,
I can at least argue the IRS says that's significant.
If we've got three or four kids, fine,
give them each pieces of it so that you only own 90%.
And then I can say, look, these other owners, they own 10%.
They are major players in the deal.
And make sure they get a little money in the distribution
so they have some benefit out of this company.
So I'm going to come down in favor of multiple member LLCs.