Tips & help
for owners of troubled small business
Since Limited Liability Corporations (LLC) are a relatively new
type of business entity, LLC owners have some difficulty finding
out how courts will treat their bankruptcy LLC cases. Will the
judge treat them like an LLC, as a corporation or as a partnership?
What will happen during a bankruptcy LLC when the company has only
one owner? Currently, there is no code or law that directly addresses
bankruptcy LLC proceedings.
Partnership versus Corporation in Bankruptcy LLC
There are two different ways a bankruptcy court may handle the
case of Limited Liability Corporation with a single owner. First,
the judge may treat the bankruptcy LLC like a partnership. In this
case the court would dissolve the LLC and deal out all remaining
assets to creditors. Anything remaining goes to the owner. On the
other hand, the judge may decide the LLC is a corporation. Here
the judge would not dissolve the owner from the bankruptcy LLC.
The former owner could give over ownership interest to another
party. If the former owner decided not to do this, the bankruptcy
judge would treat the former owner like a corporate shareholder.
The owner would not have to give up stockholdings, just as a shareholder
wouldn’t in a large corporation bankruptcy case.
Legalities of a Bankruptcy LLC
Keep in mind the most difficult part of filing for bankruptcy
LLC is there are no specific rules for dealing with a Limited Liability
Corporation. Because of this, there may be several different factors
that a bankruptcy court considers when deciding what to do. The
most important factor is the number of member owners in the corporation.
That said bankruptcy laws do not define the number of individual
owners a corporation must have, especially for an LLC.
Because the lines are so blurry here, it is hard to tell how the
bankruptcy court will decide who needs to consent to the bankruptcy
filing. All members of the LLC may have to consent to the bankruptcy
LLC filing. On the contrary if the judge treats it like a corporation,
then only one member must consent. Most often in LLC proceedings,
the bankruptcy judge looks to state laws and codes to determine
how to deal with the bankruptcy. Therefore these proceedings may
vary from state to state.
Filing the Bankruptcy LLC
Before filing for bankruptcy as a corporation or partnership,
schedule an appointment with a bankruptcy lawyer to discuss these
issues. As an alternative, you can also talk to state or county
bankruptcy officials who can clarify how they will determine the
proper procedures for bankruptcy LLC.
Help
for small business in trouble. 3 vital factors to consider.
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