The LLC Advantange: Charging Order protection
So, as a prudent business owner, you’ve incorporated to protect your personal assets from the potential creditors of your business? Good for you. But who will protect your business assets from your personal creditors? If you structured your business as a corporation, your personal creditors could take over or “attach” your shares, vote your shares, and retain any economic benefits. In other words, the loud-mouthed driver of the red BMW that stopped short just before you rear-ended it could own your company outright before you can even say “incorporation.” Who needs all those syllables anyway? Try three letters: LLC (Limited Liability Company).
One of the reasons why we, the attorneys at Grigaltchik & Galustov, P.A., get so excited about those three letters is the LLC Charging Order protection. If you structured your company as a multi-member LLC (unfortunately, single-member LLCs do not receive the same protection), then our obnoxious BMW driver may not have it so easy. If he wins a judgment against you, his sole and exclusive remedy with respect to your interest in your company would be an LLC Charging Order. Under a LLC Charging Order, he would only be entitled to receive distributions of profits, but not voting and management rights. This means that you retain control of and membership in your company! Since a typical LLC Operating Agreement requires members to approve any distributions of profit, you will be able to halt distributions, leaving that pesky BMW driver out in the cold. You may even be able to continue paying yourself a salary!
Florida is one of only six states where a judgment creditor seeking to collect against a judgment debtor’s ownership interest in an LLC is left with the sole and exclusive remedy of a LLC Charging Order. Please note that, in bankruptcy proceedings, federal law may override Florida law, and LLC Charging Order protection may not apply. If you have any further questions about an LLC Charging Order, an LLC Operating Agreement, or a business formation in Florida, please contact the Law Firm of Grigaltchik & Galustov, P.A. at (904) 738-8398.