The limited liability company is a newly created form of business. It is an amalgam of a corporation and a partnership, though some state courts have disputed this definition. For some states, particularly in Delaware, it is treated as a corporation because the limited liability company's operating agreement is very similar to a certificate of incorporation. But for some, like in Ohio, it is neither defined as a corporation nor a partnership.
Therefore, depending on where the limited liability company is located and which state jurisdiction it belongs, the bankruptcy of a limited liability company may cause dissolution. For a general approach, here are some instructions on how to file a bankruptcy of a limited liability company.
- Know if the limited liability company is entitled for a bankruptcy. Formally file an appeal or a petition for eligibility of bankruptcy in a US bankruptcy court. The court will have to decide the limited liability company's qualification of bankruptcy by having the specific state bankruptcy law as a basis. As mentioned before, the bankruptcy law is different per state. To get more information about bankruptcy, drop by the United States Courts official web site.
- Look at other options. Before filing the bankruptcy, make sure that it is necessary and that you are ready. It is often better to consider saving the entity from bankruptcy, although it really depends on the situation. Try to set up a meeting with a qualified and professional financial consultant. He might help supervise the business, find more solutions and means to restructure the business and suggest business strategies to improve credit.
- Study which bankruptcy chapter should be filed. The bankruptcy chapter depends on the ownership type of the limited liability company - if it is owned solely or having multiple investors. Ask a qualified lawyer to help you advice about the state requirements for bankruptcy and decide which chapter of bankruptcy should be filed.
- As mentioned earlier, the better to save the limited liability company from bankruptcy, the better. This is because most local bankruptcy state laws can cause dissolution on the limited liability company. But of course, such considerations depend on certain circumstances. If the owner (or owners) really wish to dissolve the limited liability company, the operating agreement, that was established when they set up the business may include provisions which could prevent the disbanding of the limited liability company, must be examined carefully.
- Be ready to deal with a long process. The procedure of filing a bankruptcy may require frequent visits to your attorney and at least half of the year to finish the filing. This might be an exhausting wait of time, but in most cases, what's good about the initial filing is that it protects the company from creditors immediately.
It is important to remember that the whenever a limited liability company applies for a bankruptcy, the situations may be different depending on which state the petition has been filed. It also depends on how the limited liability company is characterized - a corporate or a partnership. In addition, the limited liability company must also be specified if a member or a separate manager manages it. The operating agreement of the limited liability company must be able to specify which person is entitled to file the bankruptcy. In such scenarios, a qualified bankruptcy lawyer can help.