It’s not. A lot of weight should be put on the concept of “legitimate business”.
Let’s say you decide to open up a car dealership and you use an LLC to buy cars then transfer them to another LLC and sell them. Then declare bankruptcy on the one containing the bills. You won’t be shielded, and you’ll likely go to jail for fraud.
The construction is to allow a business to go bankrupt with limited liability not to allow the expense account of a business to go bankrupt.
When a dealer has a floor plan (to finance their inventory), the cars that are being bought by the dealer are collateral and have liens on them.
The lien has to be satisfied (bank paid with interest) to transfer the title to a buyer or to your theoretical “another LLC.”
Just like my car would have to be, for me to get a clear title to sign over to you.
Not everyone uses a floor plan, an unsecured line of credit would be the one situation where what you’re proposing would “work”
Floor plans are one of the reasons there’s only a few (used) dealerships in town I could walk into, plunk down cash, and walk out with a signed title that day. Because they’re transferring the title to themselves, and then to me, using the chain of ownership boxes on the back,and then sending that to dmv.
I didn’t know a lot about this other than the owner at my previous company had attempted to branch into car sales before he passed away. TLDR, we couldn’t even sell or dispose of the cars with good intentions and they all got repossessed.
It’s not. A lot of weight should be put on the concept of “legitimate business”. Let’s say you decide to open up a car dealership and you use an LLC to buy cars then transfer them to another LLC and sell them. Then declare bankruptcy on the one containing the bills. You won’t be shielded, and you’ll likely go to jail for fraud.
The construction is to allow a business to go bankrupt with limited liability not to allow the expense account of a business to go bankrupt.