Question Chapter 7 – Minority Owner (20%) in Multi-Member LLC – Risk of Trustee Action?

[bkinfo1232]

Hi everyone,

I’m considering filing personal Chapter 7 and would appreciate some insight from those who’ve had similar situations.

I own 20% of a multi-member LLC. I am not the managing member and do not have direct control over the company’s decisions or financial records.

The business is new and currently does not generate meaningful revenue. It does have ongoing expenses such as insurance, rent, and other operating costs.

At the moment, the company does not own any assets. However, the majority partner (80%) may register three fully paid-off vehicles under the company’s name in the near future. The vehicles are personally his but may be titled to the LLC.

My questions:

• How would a trustee typically value a 20% minority interest in this type of situation?
• If vehicles are registered under the LLC but the business is not profitable, does that increase the risk of trustee action?
• What happens if the majority partner cannot or refuses to buy out my interest?
• In practice, how aggressive are trustees with minority interests in small, new businesses?

I’m trying to understand realistic risk, not worst-case theoretical outcomes.

Thank you in advance.

[justbroke]

Welcome to BKForum.

How would a trustee typically value a 20% minority interest in this type of situation?

As a 20% interest in a business venture. The Trustee could (and does) step into your shoes and do anything that you could do within the LLC. Hopefully the LLC has a well constructed operating agreement (OA). That includes protection from charging orders (typically done to get at the member's financial interests) and maybe even dissociation clauses (which triggers a member's dissociation from the partnership). I am not your attorney and did not draft your articles. Since you say that you aren't the managing member that may be a good thing based on whatever rights are granted the managing member in the LLC.

[*]If vehicles are registered under the LLC but the business is not profitable, does that increase the risk of trustee action?

Trustee cannot do anything that you cannot do, including a forced liquidation, dissolution, or winding up. I don't know why Trustee that would want anything to do with an LLC that has no assets or income... but that's me.

What happens if the majority partner cannot or refuses to buy out my interest?[*]In practice, how aggressive are trustees with minority interests in small, new businesses?

This is nearly entirely driven by the OA. To not sound repetitive, but, the Trustee can't do anything more than you can do.

I’m trying to understand realistic risk, not worst-case theoretical outcomes.

No theories posited here. This is a fact. I would venture that a Chapter 7 Trustee may only inject themself in if there is clearly a way to get money. For example, seeking a payout of that interest by threatening that, of the OA allows, forced distributions or even a dissolution. There's no way to tell.

You need a qualified bankruptcy attorney to look at your operating agreement and see if it's worth the paper that is is printed on. Unfortunately, many people create LLCs using pre-printed forms and end up being subjected to the model rules (state-law or uniform rules).

In the end, it's no risk to you personally. Is the LLC at risk? Depends on the OA and what powers you personally have in the LLC based on either the a OA or statute.

Edited to add: here is a good article from the ABA on this topic. Hopefully what I wrote aligns with it. https://www.americanbar.org/groups/b...any-interests/