[The last in a seve-part series. The other articles in the series are here: Part I, Part II, Part III, Part IV, Part V, Part VI.]
With the bankruptcy courts’ inconsistent treatment of a debtor’s LLC membership rights, how should someone structure a limited liability company to maximize the possibility that, should the member file for bankruptcy protection, the member’s noneconomic rights will not end up in the hands of a bankruptcy trustee and, possibly, a subsequent acquirer? With the current state of case law, there seems to be no sure-fire way, but the following factors may help. Please recognize, however, that other, these factors may run counter to other goals and the decision to include them should be made cautiously with the advice of counsel.
- Avoid LLCs owned by one person or by a married couple. There appears to be no way of preventing a bankruptcy trustee from acquiring the economic and noneconomic rights in a single-member LLC or in, in the case of joint bankruptcy of a married couple, a limited liability company owned entirely by two spouses.