ESTABLISHMENT OF A
SINGLE-MEMBER
LIMITED LIABILITY CORPORATION
Limited liability
corporations gained popularity following the enactment of permissive
statutes in many states. However, it did not take long for the courts to
erode the limited liability of such entities.
In the 1990s, for example,
the trend was toward "piercing the veil" of limited liability
corporations, similar to the way courts "pierced the veil of other
corporations."
Single-member Limited
Liability Companies, in particular, offer dubious asset protection. In a
single-member LLC, you are the sole member. (LLCs have "members" rather
than "shareholders").
A single-member LLC offers no
asset protection, because your membership interest can be taken by
creditors, who may then liquidate the LLC and distribute the assets of the
LLC to themselves.
Recently, a U.S. Bankruptcy
Court in Colorado stated:
"Because the Trustee became
the sole member of Western Blue Sky LLC upon the Debtor's bankruptcy
filing, the Trustee now controls, directly or indirectly, all governance
of that entity, including decisions regarding liquidation of that entity's
assets . . . . [I]t is hereby ordered that the Trustee, as sole member,
controls the Western Blue Sky LLC and may cause the LLC to sell its
property and distribute net proceeds to his estate. Alternatively, the
Trustee may elect to distribute the LLC's property to the bankruptcy
estate, and, in turn, liquidate that property himself. . . ."
In re: Albright, Case no.
01-11367 ABC, U.S. Bankr. Dist. Co., April 4, 2003.
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