Updated business recovery plan
and procedure for troubled companies
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.
If
your business is currently in trouble, here are 3
concerns unique to your situation
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