Protecting Your LLC
Did You Know? Did you know that Texas leads the U.S. in cattle ranching, with more cattle than any other state? It’s true! Check out some interesting facts about cattle ranches and farm life below! BRANDING CATTLE ROOTS Branding cattle for identification dates back to ancient Egypt and Rome. Even back then, livestock owners used a hot iron to mark their animals. SCENTS FOR MILES Cows have an excellent sense of smell and can detect scents up to six miles away. COW COMPANIONS Cows are social animals and form strong bonds with each other. They often groom one another and choose specific friends within the herd.
Strategies Against Creditor Charging Orders
When creditors pursue a judgment against a debtor who owns a business, the courts issue what is referred to
as a charging order. This order authorizes a lien against distributions from a Limited Liability Company (LLC). The creditor seizes the money owed to them through a lien placed on the distributions from the LLC. The lien goes only against distributions paid out directly to the individual named in the charging order and not other members or owners of the LLC. HOW LLCS PROTECT AGAINST CHARGING ORDERS Some states, including California, allow creditors to foreclose on a debtor’s membership interest in an LLC using court judgments. A single-member LLC may be exposed to complete liquidation in the foreclosure of the debtor’s interests. A multi-member LLC protects other members from the debt of the lone member with the lien applied against them. Ensuring your LLC has a buy-out clause for members adds an additional layer of protection should a member’s debts disrupt company operations. The lone protection single-member LLCs get from charging orders is that this does not expose company or personal assets to liability. Only distributions can be targeted by a charging order, and your company can survive if the debt isn’t a large portion of the LLC’s interest. TAX CONSEQUENCES FOR LLCS FACING CHARGING ORDERS Because the creditor only assumes the resulting distribution and not an actual controlling interest in the LLC, the debtor retains sole responsibility for the tax payment of the distributions. This means the distribution goes to the creditor, but the tax bill stays with the member. The only time the creditor is responsible for the taxation of the interest in the LLC is if the creditor moves to foreclose on or liquidate the LLC or the debtor’s interest in the LLC. FACING A CHARGING ORDER? HIRE AN ATTORNEY Charging orders put the entire business at risk if the necessary asset protection strategy is not in place. The team at Dahl Law Group helps single and multi-member LLCs optimize their asset protection strategies to avoid these circumstances or at least prepare for them.
LARGEST CATTLE RANCH
The largest cattle ranch in the world is the Anna Creek Station in Australia, which spans about 6 million acres — larger than Israel!
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Contact our offices if you are facing a charging order or need to adjust your strategy to protect your work from them in the future.
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