I am the owner of a single-member Limited Liability Company (LLC). It is extremely likely that the LLC will be served with a lawsuit in the very near future. Although I am confident the LLC would prevail at trial, the LLC cannot afford the costs of defending against the lawsuit. Regardless, win or lose in court, the LLC does not have sufficient assets to pay any adverse legal judgment that might be rendered against it. Would dissolving the LLC and reestablishing the business under a new name be an acceptable means of dealing with the anticipated lawsuit?
As an initial matter, we must state unequivocally that attempting to put assets beyond the reach of identifiable and known potential judgment creditors (as well as actual judgment creditors) is illegal. The umbrella term for such actions is “fraudulent transfer.”
If it is proven that a debtor engaged in a fraudulent transfer, the ultimate cost to the debtor could be many times more than the amount of the underlying debt. Although debtors should consult with counsel prior to implementing any legal strategy, bankruptcy may be the best course of action for a company that is faced with a court judgment that it does not — and will not — have the ability to pay.
That said, your question illustrates the importance of pre-litigation planning — what is commonly referred to as “asset protection.”
Although the nature of your business or the claim against it is not ascertainable from your question, what can be said is that most businesses (as well as individuals who work as employees) can benefit from pre-litigation (asset protection) planning.
Depending on the nature of the most probable type(s) of claim(s), pre-litigation planning can help the assets of manufacturing businesses, service businesses, professional practices, real estate investors, and individuals.
Resolving legal disputes through litigation is expensive, with results being extremely unpredictable. Pre-litigation (asset protection) planning, seeks to minimize the potential for litigation, as well as the adverse effects in the event litigation becomes unavoidable.
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Lapin Law Offices, P.C.
5001 Spring Valley Road, Suite 400 East
Post Office Box 802234
Dallas, Texas 75380
Disclaimer: The information contained in this publication is provided by Lapin Law Offices, P.C., for informational purposes only and, shall not constitute legal advice or create an attorney-client relationship. The laws and interpretation of laws discussed herein may not accurately reflect the law in the reader’s jurisdiction and/or may not reflect current law. Do not rely on the information contained in this publication for any purpose. If you have a specific legal question, please consult with an attorney in your jurisdiction who is competent to assist you.