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TexLaw
TexLaw, Attorney
Category: Legal
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Experience:  Lead trial/International commercial attorney licensed 11 yrs
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LLC asset protection. we live in fl. a new mexico llc was

Customer Question

LLC asset protection. we live in fl. a new mexico llc was established as a holding company, with 5 members not all related. one member is the managing member. under the llc name and EIN number we set up bank accounts in new mexico under our names
as acct. indetifiers. All 5 of us are signers on all accounts. we have no personal accounts outside of the llc. can a creditor in fl grab the money in any account if they win a judgment against any one member?
Submitted: 2 years ago.
Category: Legal
Expert:  TexLaw replied 2 years ago.
Hi,

A creditor who sues a member of an LLC in that member's individual capacity cannot touch the assets of the LLC, which are the bank accounts. The only way a creditor can get to the LLC's assets is by suing the LLC.

That being said, there is something you state which troubles me. You say that none of the members of the LLC have any personal accounts outside of those held by the LLC?

If that is correct, then you have endangered the LLC assets. An LLC is a business entity. If you use the form of the business entity as a simple way to hide assets, then the creditor can still get to them by going through a procedure called "Piercing the Corporate Veil". This is where a person has used his business as a "personal conduit" or as a sham corporation and is intermingling business expenses with personal expenses from the same accounts. Is that happening in your case?
TexLaw, Attorney
Category: Legal
Satisfied Customers: 4164
Experience: Lead trial/International commercial attorney licensed 11 yrs
TexLaw and 18 other Legal Specialists are ready to help you
Customer: replied 2 years ago.

NO. because the NM LLC was organized as a "HOLDING" company and the operating agreement from NM specifically states "This is a multi member LLC organized for the sole purpose to hold title to property, and maintain bank accounts and specifically not engage in any business enterprise as of this date.


 


Our Florida LLC bank accounts were also set up as a HOLDING Company under Florida Statutes 608.501 that specifically says " A foreign Limited Libality Company who's only Principal Products or Services is just that of a Holding Company, ONLY for Banking Purposes does NOT constitute transacting business.


 


So we are NOT transacting business and since the LLC is a separate legal entity, the assets in it cannot be held liable for any personal debt or obligations. As a separate entity under the LLC name and EIN, no asset search on any individual member will show up.


 


As a "HOLDING" company for "BANKING PURPOSES ONLY" as per Florida and New Mexico statutes, we are not intermingling business expenses with personal expenses. YOUR THOUGHTS APPRECIATED


 


Thanks



Expert:  TexLaw replied 2 years ago.
I understand the web of holding companies that you have set up. And this will definitely go far in preventing potential creditors from getting to your assets. However, this is not a protection against Piercing allegations to which you are potentially exposed.

Yes, a holding company does not transact business other than being a conduit through which money passes and is distributed. However, if the holding company's bank accounts are not simply passing money to an individual who withdraws and then puts it into his own bank account, but rather the individual is using the LLC's bank account for personal purchases, then you are exposing the LLCs assets.

What I am trying to warn you about is that regardless of the legal architecture of the LLCs owning the bank accounts, if you are using the money in the bank accounts for non-business purposes, then it doesn't matter that you have designated the LLC as a holding company, it can still be reached by creditors.

Now, will it be easy for the creditors to reach? No, not at all, it will be very difficult. Most creditors will have a hard time discovering the existence of holding companies and courts are reluctant to force you to turn over financial evidence in these types of situations. That being said, there are many lawyers, including me, who know how to break through multiple layers of holding companies to get to assets if the members of the llc's are simply using them as a way to disguise a personal use bank account in an llc.

If you are talking about significant assets and you are in significant danger of having the creditors pursue the assets or you, then the best option is to have an additional layer of a trust set up to receive the money from the holding company. A trust is a way to protect the asset but also to allow for spending on personal welfare.

Of course, the ultimate protection is to funnel the money through an overseas holding company.
TexLaw, Attorney
Category: Legal
Satisfied Customers: 4164
Experience: Lead trial/International commercial attorney licensed 11 yrs
TexLaw and 18 other Legal Specialists are ready to help you

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