Filing Business Bankruptcy

Who Can Authorize a Bankruptcy Filing on Behalf of a Business Entity?

The business entity plays a vital role when filing business bankruptcy. It decides whether business debt will get discharged in a Chapter 7 bankruptcy (sole proprietors, only), and whether your personal assets are at risk for business debt (sole proprietors and partnerships). Before filing a business bankruptcy it is important to know exactly who has the authority to file on behalf of the organization or else the case may be dismissed.

Filing Business Bankruptcy: Limited liability company

A limited liability company does not have an owner. A person referred to a “member” can hold ownership Instead, a person—called a “member” may hold an ownership percentage of the company. The articles of organization will include the ownership interests as well as name the managing members (the people who have the power to make any decisions pertaining to the business). The articles must give the individual initiating the LLC’s bankruptcy the authority to engage in such action.

Filing Business Bankruptcy: Corporation

As with an LLC, a corporation is a separate entity and can’t be owned by an individual. Instead, someone can obtain an ownership interest by purchasing shares of stock. The board of directors elects corporate officers to take certain actions on the corporation’s behalf. You’ll find the authority to file a corporate bankruptcy in the organizational documents. A shareholder cannot initiate a corporate bankruptcy, which can be problematic if the business is failing and an authorized officer can’t be found.

Filing Business Bankruptcy: Sole proprietor

A sole proprietor recognizes the owner and the business  as one entity. As such, the business owner is liable even in his or her personal capacity to pay back the company’s debt. Furthermore, only the business owner can file initiate bankruptcy on behalf of the business.

Filing Business Bankruptcy: Partnership

A partnership operates more or less like a sole proprietorship, however more than one owner exists. Like a sole proprietorship, general partners are personally liable for company debt, and a bankruptcy filing also places the personal assets of the partners at risk. If the partnership appoints a managing partner, that partner can initiate a bankruptcy. If not, all partners must sign the bankruptcy petition unless it is an involuntary petition.