Have you heard of “charging orders.” These are legal wedges creditors try to employ to try and drive a wedge between you and your business. If your business is an LLC (Limited Liability Company) or an LP (Limited Partnership), then there is more you should know about charging orders. This was addressed in a recent Forbes article titled “The Misunderstood Charging Order.”
While this is a complex subject, basically a “charging order” is a creditor’s first and last tool to extract your interests and capital from your business (assuming they do not try to "pierce the veil"). In a corporation, a charging order can allow a creditor to actually gain a debtor’s stock interests in the business. This can be disastrous. “Limited” company structures are specifically designed with “charging order protection” in mind and this is worth understanding.
The original article goes into greater detail, but essentially a “charging order protection” is a means by which a creditor can place a lien on your LLC membership interests and claim any distributions. Fortunately, however, a creditor cannot claim the membership interest itself and sabotage the business.
Certainly there is much more to know on the subject of asset protection, to include on the subject of company structures themselves. Although some this discussion tends toward the academic, only you know your personal needs and the corresponding needs of your business. Plan accordingly.
Reference: Forbes (April 30, 2013) “The Misunderstood Charging Order”