Legal Question in Business Law in New York

Have a family member that is thinking of getting into buying and selling houses and incorporating with a LLC but has investors other family members that do not wish to invest with him unless they clear up what will happen if the principal gets sued for what ever reason. Details below...

The concern is the following:

How can the 2 members that are inactive be protected If the principal of the real estate investing company for what ever reason all of a sudden someone wants to sue the principal owner of the llc on something that has nothing to do with real estate business but for some thing more personal outside of the real estate business.

Lets say there is a profit of $100k in the bank under the llc made from profit from buying and selling the houses, and now some one wants to sue the principal what can be done to protect the other 2 members from getting hurt as well.

What can be done to protect the other members from losing money from the lawsuit that has come about only for the principal of the company.

Can the LLC be set up from the start in a way that the other members do not take a fall because of the principal of the company.

If one knows that there is a lawsuit coming up potentially coming up, can one do some thing at that point to protect the interest of the 2 members that they do not lose money due to the principal being sued and they are coming after the principal corporation assets or money, if the money is not all of the principal but also belongs to the other members what can be done immediately to protect the other 2 members profits from the deals that were done.


Asked on 7/06/10, 3:22 pm

1 Answer from Attorneys
Kristen Browde Browde Law, P.C.

If the LLC is properly set up and run its assets can not be reached by creditors of any individual member or shareholder; what can be reached is only that member or shareholder's interest in the LLC. That's the whole idea of corporate structure - that the corporation is its own entity, and is not an alter ego of a shareholder.

Thus if the LLC has a cash asset and the shareholder is sued, the LLC is not liable. If the LLC makes a distribution to its members then only the money paid to the person being sued could be attacked.

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Answered on 7/06/10, 6:29 pm


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