A Charging Order is an Order from a competent court in Florida entitling a Creditor to collect a judgment on the interest of a debtor in a Limited Liability Company (LLC)
Imagine you won a lawsuit and have a $200,000 judgment in your hands. Oftentimes, the defendantโthe one against whom you prevailed in your lawsuitโwonโt just hand you a check or zelle you $200,000 to your account. On the contrary, debtors often hide assets in LLCs which are a separate juridical person against whom you cannot collect your judgment directly.
This is where obtaining a charging order under Florida Statuteย ยง605.0503ย comes into play. Underย ยง605.0503ย โthe court may enter a charging order against the transferable interest of the member or transferee for payment of the unsatisfied amount of the judgment with interest.โ
Importantly, section (4)ย ยง605.0503ย states that โ[I]n the case of a limited liability company that has only one member, if a judgment creditor of a member or memberโs transferee establishes to the satisfaction of a court of competent jurisdiction that distributions under a charging order will not satisfy the judgment within a reasonable time, a charging order is not the sole and exclusive remedy by which the judgment creditor may satisfy the judgment against a judgment debtor who is the sole member of a limited liability company or the transferee of the sole member, and upon such showing, the court may order the sale of that interest in the limited liability company pursuant to a foreclosure sale.โ
In short, if you have a judgment against you, and you hold assets via a single member LLC,ย ยง605.0503ย permits your creditor to foreclose on your business. Once he forecloses, the creditor can purchase your business at a sale, and then collect on the assets of the LLC it just obtained.
A completely different scenario occurs if your LLC is multimember (i.e.: two or more). In that case,ย ย ยง605.0503(6) specifically states that in an LLC that has more than one the remedy of foreclosure is not available to satisfy a judgment. Importantly,ย ยง605.0503(6) plainly speaks of โmultimember.โ This means that as long as your LLC has one other member, it will be much harder for Creditors to reach the asset of your LLC. Percentage donโt appear to matter either. In other words, you could have a 1% other member, and your LLC still qualifies as a โmultimemberโ LLC. This is all of course, subject to other more complex laws governing fraud and doctrines such as โalter egoโ (when the LLC is sham) but generally, you should feel that your assets are much safer in a multi member LLCโeven if that second member has a small minority stake in the LLC.
For more information about asset protection, Limited Liability companies, commercial litigation, or entity formation and structuring, contact an experienced business attorney at Ayala at 305-570-2208.
You can also schedule a case evaluation online atย https://www.lawayala.com/
Alternative, you can directly email experienced miami business lawyer Eduardo A. Maura atย eduardo@ayalalawpa.com
