LLC question: Advantage to multiple shareholders

[Kris L.]

Does an LLC offer more legal protection if there is more than 1 owner? Like if I gave my brother a 0.01% share does that do anything to help or hurt things? I could see it might compromise pass through tax status, but I know very little about LLCs and don't know if they are for me at this stage.

[Steve Hall]

@Kris L.

Yes, in many states a multi-member LLC offers more legal protection than a single member LLC. The biggest protection is from foreclosure. In some states, a creditor may be able to foreclose on (and liquidate) a single member LLC to collect a judgment. The flip side is that you've just opened up your multi-member LLC to your bother's liability. If your brother drive's drunk and kills someone, your LLC will be sued. You might prevail, but you will still spend a lot of money to defend yourself.

One alternative is to open an LLC holding company in a state like Delaware, Nevada, or Wyoming. This is because those states have great charging order protection. Their laws state that charging orders are the exclusive remedy for creditors of both single and multi-member LLCs. (No foreclosure!)

Ideally, you should have a single member operating company LLC in your state, which is owned by a Wyoming holding company LLC.

Read this article if you want more clarification on what I have said here...