The Uncertain Viability of a Single Member Limited Liability Company as a Choice of Entity

Single Member Limited Liability Companies (“SMLLC”) play an increasing role in a wide array of transactions—including corporate reorganizations, like-kind exchanges, and asset protection. However, recent legal developments showcase pitfalls and uncertainty associated with utilizing SMLLCs as an operating business entity. Specifically, courts have held that creditors of a SMLLC can go beyond traditional remedies of obtaining a charging order or piercing the corporate veil to satisfy an existing judgment. For owners to take full advantage of the SMLLC form, they need to heed the cautions implicit in recent legal developments and enact operating agreements and bylaws that help preserve control and management rights if the SMLLC is faced with a severefinancial reversal.

This article investigates the corporate structure of SMLLCs and offers innovative solutions to enhance protection of an owner’s assets and safeguards in the event of bankruptcy.