Because of its numerous advantages, including pass-through taxation and restricted liability for the owners, restricted Liability Companies (LLCs) are a common choice for business structures. However, whether LLC assets are shielded from creditors is a common query. It depends, is the answer.
LLCs typically provide some amount of security for the private assets of their owners. This is so that creditors cannot seize the personal assets of the proprietors, only the assets of the LLC. However, there are specific circumstances where the assets of an LLC might not be shielded from creditors.
For instance, if the LLC is sued and found liable, the creditor may be able to seize the LLC’s assets in order to pay off the judgment. Additionally, if the LLC used its assets to guarantee an obligation, such a loan, those assets might also be in jeopardy if the loan defaults.
So what are the options for LLC owners to safeguard their assets from creditors? To opt into Article 8 of the Uniform Commercial Code (UCC) is one alternative. Securities held by an LLC are additionally protected under Article 8.
A LLC that has elected to be governed under Article 8 of the UCC is said to be a “Article 8 opt-in” entity. This means that when it comes to the transfer of its securities, such as stocks and bonds, the LLC has committed to adhere to specific norms and procedures.
The fact that Article 8 offers a safe harbor for stocks held by the LLC is one of the key advantages of choosing to participate in it. This means that the LLC’s securities are shielded from creditors’ claims if they are held in a specific manner and particular processes are followed.
The LLC must submit a notice to the secretary of state in the state where it was formed in order to opt into Article 8. The notification must contain specific details, including the name of the LLC, the country or region in which it was formed, and a declaration that the LLC has chosen to be governed by Article 8 of the UCC.
Despite the fact that LLCs do provide some amount of security for their owners’ personal assets, there are specific circumstances in which an LLC’s assets may not be shielded from creditors. In order to benefit from the additional protections that opting into Article 8 of the UCC can offer for the securities owned by the LLC, it is crucial to comprehend the guidelines and processes involved. Before making any decisions about LLC asset protection, it is always advised to seek legal advice.