Banking & Finance Law Report

Tag Archives: Ohio LLCs

Update to SMLCC Charging Order Blog Post

Substitute House Bill 48, an amendment to Ohio’s Limited Liability Company Act, discussed in our December 9, 2011 post, Charging Order Protections for Multi-Member and Single-Member LLCs (SMLLCs), has been passed by the Ohio General Assembly and signed into law by Governor Kasich. This act amends ORC 1705.19 to expressly provide that a charging order is the "sole and exclusive remedy" of a creditor seeking to satisfy judgment against the LLC membership interest of a debtor and to prohibit any creditor of a member of an LLC from having any right to obtain possession of, or to exercise legal or equitable remedies with respect to, the property of the LLC. It also specifically limits the rights of a judgment creditor who has obtained a charging order against a debtor’s membership interests to those of an assignee of a membership interest, as laid out in ORC 1705.18. The amendment will become effective May 4, 2012.

The act contains no exception for SMLLCs and makes a charging order a judgment creditor’s exclusive remedy to reach the membership interests of its debtor. Because of this, it is likely that Ohio courts will interpret the statute to provide SMLLCs with the same charging order protections …

Charging Order Protection for Multi-Member and Single Member LLCs

In the course of their business, bankers routinely encounter single member limited liability companies ("SMLLCs"), entities commonly used in real estate and small businesses. Despite the prevalence of SMLLCs, there is a fundamental legal uncertainty as to whether the assets of an SMLLC share the same level of protection from its member’s creditors as is provided to the assets of a multi-member LLC through the charging order remedy.

Depending on state law, bankers may or may not be able to reach the assets of their debtors’ SMLLCs through a charging order. Furthermore, changes to Ohio law have recently been discussed in the Ohio Legislature which attempt to remove any uncertainty and would prevent bankers and other creditors from reaching assets of a SMLLC through a charging order.

The following analysis discusses recent case law from around the country examining a judgment creditor’s ability to reach the assets of an SMLLC in which its debtor holds the sole membership interest. The LLC charging order is a remedy through which a creditor who has won a judgment may reach its debtor’s membership interest in an LLC. State LLC statutes generally require the unanimous consent of all members (other than the assigning member) in …

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