3 key
guidelines when restructuring your business. Debt & operational
restructuring.
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.
Restructuring
business? How to turnaround your business and avoid
bankruptcy.
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