Single Member LLC May Not Protect Assets

A single-member LLC (Limited Liability Co.) is often used by real estate investors, consultants or others in business for themselves. You must be careful, though, because it will not offer the asset protection that a multi-member LLC (two or more members; husband and wife are okay) does.

If an LLC is sued and loses, the judgment creditor must obtain a “charging order” to get assets inside the LLC. The judgment creditor is then entitled to distributions from the LLC like the other members. If no distributions are made, the judgment creditor gets nothing. This is a powerful shield often used to protect assets.

A Colorado court recently ruled that the assets inside a single member LLC could be taken by the judgment creditor. Most legal commentators agree that you should not use a single member LLC if asset protection is a goal. Easy answer to this problem: Include another member and do “layers” of asset protection rather than relying on one entity.

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