I am starting a new company. I wish to establish an llc or another type of corporation that will protect me from creditors. I had a recent foreclosure and they are coming at me for 70k on a 3rd against the property. I also have a credit card judgment for 18k and 30k of other outstanding debt.. Question is whether i have to claim bk to move forward with the business or whether an llc can protect me. I have investors placing 50-100k in this project and i cannot have any issues moving forward
The LLC's assets are safe from your personal creditors. However, they can seize your interest in the LLC to satisfy the debt. Same if you form a corporation. They can take your stock. Only bankruptcy or payment will help you.
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Well, the LLC will not protect YOU from any pre-existing personal debt. The LLC will protect you from debt that the LLC itself incurs.
Also remember - most small businesses do not get investment or credit extended to them when they first start out - a personal guarantee is almost always required. If that is the case here, both the LLC and you personally will owe the debt.
Talk to a bankruptcy attorney, and to a business attorney in your area about this. Make sure you are well informed prior to starting this.
I would like to add the following to the preceding answers:
You will not be personally responsible for the LLC's obligations (unless you provide a personal guaranty, and assuming there are no "alter ego" problems - please see the first link below, which discusses corporations but applies similarly to LLCs), and the LLC will not be liable for your personal obligations.
However, it is possible that a personal creditor could seize your LLC membership interest. For that reason, the LLC Operating Agreement should have detailed membership transfer restrictions and related provisions (e.g., regarding voting rights in the event that membership is transferred to an unapproved transferee).
Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.
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