Naperville Business Attorney on Your LLC and Personal Bankruptcy

LLC, Naperville business law attorneyWhen you are looking to start a business, there are a number of things to consider. Of course, you want to be sure that you will be offering products or services for which there is plentiful demand. You will need to be certain that you can meet the needs and expectations of your customers. Once you have a workable business plan, it is time to start thinking about what type of business entity is best for your new company.

In my career as a business law attorney, I have helped hundreds of new business owners create sole proprietorships, S-corporations, C-corporations, partnerships, and limited liability companies. Each type of entity offers certain advantages but is also subject to different types of risks. For the moment, however, we will look a little deeper at one of the most popular business entities—the limited liability company—and how such a company may be affected by the personal bankruptcy of the business owner.

Understanding LLCs

One of the major benefits building your business as a limited liability company (LLC) is the separation that exists between the financial affairs of the individual and the financial affairs of the LLC. In other words, if the LLC encounters financial problems, this does not typically result in the owner(s) of the LLC experiencing any negative ramifications to their personal finances. Similarly, any indebtedness of the owners is not typically visited upon the LLC itself.

Changes to Longstanding Principles May Be Coming

Under the principle of “substantive consolidation,” a bankruptcy judge may pool the assets of related individuals and/or entities in order to satisfy the claims of the creditors of the individual or entity filing for bankruptcy protection. For example, an individual who owns his or her own business as a sole proprietor may easily find that the assets of the business should be used by the bankruptcy trustee to satisfy the claims of the filing individual.

In many cases, so long as an LLC was operated in conformity with the laws of the state and was not a sham or shell operation, the business was not subject to claims filed by creditors against the owner or owners personally. Recently, however, there have been a few federal bankruptcy decisions from other parts of the country that suggest this rule may be changing. In other words, it may no longer be enough for individuals seeking to protect valuable assets—real estate, in particular—through an LLC to simply conform with the legal requirements of setting up and operating the business.

Are LLCs Still a Good Way to Protect Assets?

In light of these new developments, it is more important than ever that individuals who have investment properties or other valuable real estate assets to speak with a business professional. An attorney who is well-versed in these new changes is in the best position to advise you whether having an LLC hold your assets makes sense or if there are other methods of protecting your holdings that are more appropriate.

Reach out today and speak with the experienced Naperville business law attorneys at The Gierach Law Firm. Our team takes the time necessary to fully understand your financial situation and the assets in your possession. We will then help you decide on an appropriate course of action that will best protect these assets and your financial future.

 

Sources:

U.S. Small Business Administration

Office of the Illinois Secretary of State

New England In-House