A Qualified Subchapter S Subsidiary (Q-Sub) is an S-Corp that is 100% owned by a parent S-Corp. Both the parent entity and the Q-Sub can be a corporation or an LLC.
So what exactly is QSBS? Under Section 1202 of the Internal Revenue Code, a taxpayer may be exempt from paying capital gains tax when selling QSBS stock if they meet certain requirements.
The CTA requires both companies and beneficial owners to submit a report to the Department of Treasury’s Financial Crimes Network (FinCEN). Both requirements are discussed below.
Florida Loses Asset Protection
The Supreme Court of Florida took away a key asset protection benefit in deciding Olmstead v. Federal Trade Commission (SC 01-109, Fla. June 24, 2010). Before the ruling a charging order was the exclusive remedy, whereby the judgment creditor (the person who won a lawsuit) could only receive distributions from the LLC. Now, a judgment creditor may directly seize the ownership interest of a member in a single member LLC.
The Olmstead decision allows Florida courts to order a judgment debtor to surrender all right, title and interest in the debtor’s single member Florida LLC to satisfy a judgment. Prior to the ruling many had believed that Florida law provided that the charging order was the exclusive creditor remedy.
Multi-member Florida LLC owners should be very concerned by this decision. Writing a dissent in the 3-2 decision Justice Lewis warned that the Olmstead ruling means that the charging order is a non exclusive remedy for all LLCs, whether single or multi member.
Justice Lewis wrote:
“The majority opinion now eliminates the charging order remedy for multi-member LLCs under its theory of “nonexclusivity” which is a disaster for those entities.”
If you are using a Florida LLC to protect your assets you may want to reconsider your state of formation.
Wyoming allows LLCs to easily reform themselves into Wyoming. The continuance process allows a Florida LLC to reorganize in Wyoming and keep the same formation date, EIN number and credit history. The advantage is that you now have a Wyoming LLC, which expressly recognizes the charging order as the exclusive remedy.
Our office charges $995* plus filing fees to continue LLCs to the better asset protection state of Wyoming. Please call 1-800-600-1760 for more information.
And remember, asset protection is an ever changing area of the law. The Olmstead case was decided in a way that allowed another government agency – The Federal Trade Commission – to collect. Of course, the case now applies to the benefit of all creditors. In a dynamic field it is important to stay current on the latest cases, and move accordingly.
*Fees are subject to change. Please obtain a quote from an Incorporating Specialist for up-to-date fees.
When someone sues your business, a plaintiff may try to pierce the corporate veil to hold you personally liable. The corporate veil itself symbolizes that you are keeping your business property separate from your personal property.
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