| The single member LLC (limited liability company) is a | | | | creditors, and particularly ex (or soon to be ex) |
| very popular business form for home based | | | | spouses. |
| businesses without any employees. | | | | The way this sheltering works is that when someone |
| The single member LLC is simple to form, has fewer | | | | sues you personally and wins a judgment, while they |
| corporate formalities than a corporation, and filing a tax | | | | can take your LLC membership shares, they don't get |
| return for a single member LLC is far easier than with | | | | to vote your shares. All they get is what's called a |
| a corporation or partnership. | | | | charging order - giving them the right to collect any |
| However, there is controversy and confusion over the | | | | money paid out by the LLC to its members. In a |
| protection that single member LLC provides for your | | | | multi-member LLC, if one member's shares are subject |
| assets. | | | | to a charging order due from personal creditors, the |
| Before getting into that, lets back up and look at the | | | | other members can refuse to distribute money from |
| two types of risks to your assets when you own a | | | | the LLC and starve out the creditor. |
| business. | | | | Two recent bankruptcy cases have held that single |
| 1. Inside-Out : from business to personal | | | | member LLCs might be less useful in these cases, as |
| The first kind of risk the possibility that someone with a | | | | these cases permitted the bankruptcy trustee to take |
| claim against your business could also take your | | | | over the single member LLC force distribution of all the |
| personal assets. For example, if you operate a store | | | | LLC's assets. |
| as a sole proprietor, and some slips and falls and sues | | | | If your goal is to hide assets from personal creditors in |
| your business, they could collect on their judgment | | | | a corporation, partnership, LLC or trust, the single |
| against your personal assets (home, car, etc.). | | | | member LLC might not be the best choice. |
| The advantage of corporations and LLCs is that in the | | | | Of course, if that is your goal, few choices are good. |
| above situation, your personal assets are protected | | | | Lookup the case of FTC vs. Anderson. In that case, |
| from your customer's slip and fall claim. | | | | Anderson hid money in an off-shore asset protection |
| A creditor of your business can only get to your | | | | trust which Anderson claimed he couldn't control. The |
| personal assets through the difficult legal process of | | | | judge told Anderson to bring the money back. |
| piercing the corporate veil. | | | | Anderson refused, claiming that he couldn't control the |
| Now, some commentators claim that a single member | | | | trust. The judge threw Anderson in jail. Soon, Anderson |
| LLC's veil is easier to pierce. I disagree. If you run your | | | | suddenly got control of the offshore account and paid. |
| single member LLC properly, don't commingle funds, | | | | Trying to hide your personal assets from your |
| adequately capitalize it, and observe the minimal | | | | personal creditors by placing them in a business |
| corporate formalities required of an LLC - then a single | | | | structure is a flawed strategy. The fact that single |
| member LLC is at no greater risk than a corporation | | | | member LLCs are not a part of this type of asset |
| or multiple member LLC. | | | | protection scheme doesn't make them less useful in |
| I have not read any published opinion from a judge in | | | | my opinion. |
| which he held that the mere fact of being a single | | | | Rather, use business entities for what they are |
| member . | | | | intended - to protect your personal assets from |
| LLC permitted veil piercing in the absence of other | | | | business creditors. |
| elements of veil piercing, such as commingling of funds | | | | Attempts to use business entities to protect personal |
| combined with fraud. | | | | assets from personal creditors is borderline fraud, and |
| 2. Outside-In : from personal to business | | | | many judges and bankruptcy trustees will not tolerate |
| Some people try to place their assets in corporations | | | | it. |
| and partnerships to shelter them from personal | | | | |