Owning Single Purpose Assets with LLCs

Owning Single Purpose Assets with LLCs

Under Florida asset protection law, what does having limited liability companies own single purpose assets entail?

Having limited liability companies (LLCs) own single purpose assets revolves around utilizing LLCs to hold specific assets or investments, effectively segregating them from other ventures or properties. This approach shields these assets from potential liabilities in other parts of an individual’s or entity’s portfolio.

For example, let’s consider a real estate investor who owns multiple properties in Florida. Instead of holding all the properties under a single LLC, the investor establishes separate LLCs for each parcel. This structure limits liability exposure for each property and insulates it from any legal issues that may arise with the others. In this instance, the investor has effectively employed single-purpose LLCs under Florida law to protect each asset.

Another example can be found in the context of intellectual property. Suppose an entrepreneur has multiple patents, trademarks, or copyrights. By assigning ownership of each intellectual property asset to a separate LLC, the entrepreneur can protect each asset from potential liabilities arising from the others. The United States Patent and Trademark Office (USPTO) regulations, which allow for assigning intellectual property rights to legal entities such as LLCs, support this example.

Need help with a matter relating to limited liability companies owning single-purpose assets? Schedule your consultation today with a top asset protection attorney.

Which asset protection laws and regulations relate to having limited liability companies own single purpose assets in Florida?

In Florida, the Florida Limited Liability Company Act establishes the framework for creating, operating, and dissolving LLCs. It outlines the rights, duties, and liabilities of members and managers and the procedures for asset transfers.

At the federal level, the Internal Revenue Code (IRC) provides guidance on tax treatment for LLCs, with each single-purpose LLC being treated as a separate taxable entity. Additionally, the United States Patent and Trademark Office (USPTO) allows the assignment of intellectual property rights to legal entities, including LLCs.

What are common issues regarding having limited liability companies own single purpose assets that lead to asset protection litigation?

The following issues are among the most common in actions regarding having limited liability companies own single purpose assets in asset protection law matters:

• Piercing the corporate veil: When a court decides to disregard the LLC’s limited liability protections due to fraud, commingling of personal and business assets, or inadequate capitalization, creditors may access the assets of the LLC and its members.
• Improper formation or management: Errors in forming or maintaining an LLC, such as failing to file required documents or not following operating agreements, can lead to legal disputes and undermine the asset protection advantages of an LLC.
• Disputes among members or managers: Conflicts over management, profit distribution, or decision-making authority can result in litigation, potentially jeopardizing the LLC’s assets.
• Bankruptcy: In the event of bankruptcy, a single-purpose LLC’s assets may become part of the bankruptcy estate, subject to the claims of creditors. Proper planning and structuring can mitigate this risk.
• Transfer of assets: Disagreements over the transfer or assignment of assets to or from an LLC can lead to litigation, especially if the parties involved fail to adhere to established legal procedures or contractual obligations.
• Tax compliance issues: Disputes with the IRS over the tax treatment of LLCs, particularly in cases where single-purpose LLCs are involved, can result in penalties or even jeopardize the asset protection benefits of the LLC structure.

When a set of facts meets the requirements of asset protection litigation, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path forward to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation, please contact our office to set up your initial consultation.

What strategies minimize the risk of litigation over having limited liability companies own single purpose assets?

To minimize the risk of litigation over having limited liability companies own single purpose assets, an LLC should consider the following strategies:

• Proper formation and maintenance: Ensure the LLC is correctly formed according to Florida statutes and consistently follows its operating agreement. Regularly file required documents and maintain separate records for each single-purpose LLC.
• Asset segregation: Separate assets and liabilities by creating distinct single-purpose LLCs, reducing the risk of one LLC’s liabilities affecting another LLC’s assets.
• Adequate capitalization: Ensure each LLC is adequately capitalized to meet its obligations, reducing the risk of piercing the corporate veil.
• Clear operating agreements: Draft comprehensive operating agreements that clarify member and manager roles, decision-making processes, and profit distribution, avoiding potential disputes among stakeholders.
• Tax compliance: Stay current on federal and state tax laws and regulations, ensuring that each single-purpose LLC meets its tax obligations.
• Proper asset transfers: Adhere to established legal procedures and contractual obligations when transferring assets to or from an LLC, avoiding potential disputes over asset transfers.

Frequently Asked Questions

1. Can a single-purpose LLC own multiple assets?
   A single-purpose LLC is typically designed to hold one specific asset, such as real estate or intellectual property. While it is possible for a single-purpose LLC to hold multiple assets, doing so may increase the risk of litigation and reduce the asset protections tied to this strategy. Therefore, creating separate single-purpose LLCs for different assets is generally advisable to maximize asset protection.
2. How does a single-purpose LLC impact tax obligations?
   Tax obligations for single-purpose LLCs depend on the structure and classification of the LLC. By default, the IRS treats a single-member LLC as a disregarded entity, and an owner must report its income and expenses on their personal tax return. On the other hand, multi-member LLCs are taxed as partnerships by default, with profits and losses passed through to the members. Therefore, proper tax planning and compliance are essential to avoid disputes with the IRS and maintain the asset protection benefits of the LLC structure.
3. Can creditors go after the assets of a single-purpose LLC?
   In general, a properly formed and maintained single-purpose LLC offers limited liability protection, meaning that creditors can only access the LLC’s assets and not the personal assets of its members. However, suppose a court decides to pierce the corporate veil due to factors like fraud, inadequate capitalization, or commingling of personal and business assets. In that case, creditors may access the LLC’s and its members’ assets.

Have more questions about an asset protection-related situation?

Crucially, this overview of having limited liability companies own single purpose assets does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain a tireless advocate every step of the way. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to set up a consultation.