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How to setup a bankruptcy remote entity! we are a new startup in the financial industry and have a few incorporation issues!

Austin, TX |

we are a new Peer to Peer online platform. we need to have a few entities. one entity to connect investors, then one entity to service and maintain the loans! the model is similar to www.lendingclub.com and www.enduranceln.com . we connect investors and small business people needing capital, a third party private label bank will actually issue and underwrite the loan then sell it back to our bankruptcy remote company that services the loan and issues monthly payments to the investors. we need to find a incorporation structure that allows investors to still receive payments even if we go out of business. (SEC rules). a unique project look forward to hearing from you.
dave

Attorney Answers 5


  1. bankruptcy remote entities are typically single purpose LLCs with special provisions limiting the operations of the LLC and limiting the ability of the LLC to file bankruptcy; I would recommend a separate LLC for each loan, which in turn can be controlled by your master servicer.


  2. You need to consult with a bankruptcy firm that handles this type of structuring from the outset as well as a firm that does SEC work.


  3. This may be a good case study for you to read so that you have a better sense of how (and how not) to establish your SPE's for the crowd funding aspects to individual borrowers. Good luck to you.

    http://www.law.emory.edu/fileadmin/journals/bdj/28/28.2/Pearce.pdf

    My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained.


  4. You will want to work with several attorneys in accomplishing your objectives. Both a bankruptcy and a securities attorney each of whom can help you establish the bankruptcy remote SPE. Someone with tax experience to talk about tax efficiency in the overall structure. Finally, you will want to hire a good banking lawyer to work out contractual issues with the third party bank.


  5. You not only need a securities and tax attorney to work with you, but also those involved with banking given that you'll be using a "private bank" to issue and underwrite loans. The regulations in that area alone will require able counsel. But if you're looking to provide the payments to the investors on a regular basis, why not simply use swaps?

    The foregoing is not legal advice nor is it in any manner whatsoever meant to create or impute an attorney/client relationship.

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