Tribal LLCs v Standard LLCs
Created around the very late 1970s, the Limited Liability Company, or LLC, has become the brass ring that every small to medium-sized business should reach for – perfect for individuals or very small groups of individuals. A hybrid between corporations and partnerships, it has the asset protection of limited partnerships and the liability protection of corporations, but without many of the strict requirements and paperwork required of corporations, plus you can choose to be taxed any way you want to. However, while there are many options you can select in forming an LLC, this very fact means that you have to be very cognizant of exactly how you set it up lest you find yourself in an inconvenient position later on.
How an LLC Protects Assets
LLCs offer a number of benefits in addition to asset protection, such as tax benefits, liability protection for members, anonymity for non-managing members, and fewer requirements and less paperwork than are required to maintain a corporation. When it comes to asset protection, LLCs offer the same level of asset protection and charging order protection that limited partnerships provide.
Charging order protection is important, because it means that anything a member of an LLC does that makes him personally liable for something does not reach the LLC. At worst, while a creditor may get the profits from an LLC member’s share, he still does not get the voting and other legal rights within the LLC. So you have that inside protection that you need because the LLC acts as a buffer between its members and its business. Compare that to a corporation where a creditor suing an individual can not only get the profits from a member’s shares but any voting interest as well. A creditor can only get a charging order against an LLC.
So, an LLC has a lot of benefits over a limited partnership or a corporation as it is a hybrid entity that provides the best of both worlds in terms of tax benefits and liability protection while also offering a more flexible operating environment than a corporation. The asset protection is there as well, compared to other entities which aren’t as robust in this arena. A Tribal LLC, on the other hand, offers all of these same protections with additional layers of asset protection.
Why a Tribal LLC Is Better
Both Tribal LLCs and standard LLCs are issued EINs, and both file taxes the same way. They have similar setup costs and a similar yearly maintenance fee. However, in a standard LLC, it is easy to serve the company’s registered agent with a lawsuit. Also, legal action is maintained in state court, so any attorney licensed in the state can bring a lawsuit against the LLC (and there are 78,244 lawyers licensed to practice law in Florida and counting). On the other hand, it is extremely difficult to serve the registered agent of a Tribal LLC with a lawsuit. Also, lawsuits against a Tribal LLC must typically be brought in Tribal court, so the plaintiff’s attorney must be licensed to practice in Tribal court; a Florida Bar law license won’t cut it. State courts generally have no jurisdiction over Tribal LLCs.
Additionally, depending on the jurisdiction, charging order protection might not be available for a single-member LLC. The charging order is not meant to protect the debtor but rather is meant to protect the other members from being forced to be partners with the creditors because of one member’s debt. Courts in Florida and Colorado have decided this logic does not apply to single-member LLCs since there are no other members to protect. In these cases, the creditor was allowed to take away membership just as for a corporation.
One solution to this conundrum is to include at least one other member in your LLC, but doing so might not be feasible or preferable given your circumstances. A Tribal LLC, on the other hand, can have a single member and still obtain charging order protection.
Ready to Talk About a Tribal LLC?
If you are already convinced about the benefits of a Tribal LLC or are at least intrigued enough to want to learn more, call Tribal LLC at 239-649-8050 or use the online contact form to book your consultation with attorney Marc Shapiro. Marc has researched and written extensively about Tribal LLCs and is experienced in setting them up, and he will be happy to explore this asset protection option with you.
