Case Update: Risks of Single Member LLCs

Tradewinds is a Single Member LLC that constructed to build an airplane hanger. Tradewind’s only asset was an airplane. They sold the airplane when litigation arose and distributed the proceeds to Tradewind’s only owner, Freeman. Freeman used the money from the sale to pay for the litigation expenses.

Tradewind’s sale left them without any assets to satisfy the judgment against them. In Martin v. Freeman, the trial court pierced Tradewinds’ veil and held Freeman personally liable for the hangar dispute.

Single member LLCs are dangerous because they are “’an alter ego case waiting to happen.’” Most single member LLCs do not survive creditor attacks so it is best to avoid them unless they are dealing in business with no liability attached.

Jay Adkisson, Martin: The Inherent Dangers of The Single Member LLC And Alter Ego Veil Piercing, Forbes, Feb. 5, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.