Charging order protection is under attack, and the trend is to eliminate the charging order protection for a single member LLC
Siesta Key, FL (PRWEB) September 27, 2012
“Charging order protection is largely a function of how the LLC operating agreement is drafted and whether or not the LLC is a single member LLC or a multiple member LLC,” explained Lee R. Phillips, CEO of LegaLees Corporation.
Members are the “stockholders” in an LLC. The LLC articles of organization and LLC operating agreement define whether the company is a single member LLC or not.
LegaLees Corporation has just updated its free LLC operating agreement template and its deluxe version of their LLC audio tutorial on LLC operating agreements. Phillips said, “LegaLees is proud to offer an updated LLC operating agreement to the public.”
Get a free operating agreement template by going here.
“Many of the LLC operating agreement forms people get from their attorney or off the internet end up being about five to ten pages long. It really takes between twenty and thirty pages in an LLC operating agreement to address the basic issues that need to be addressed, even for a mom and pop LLC,” said Jonathan Cavender, a Utah attorney, who is a small business advisor.
One of the features of an LLC is its charging order protection. Charging order protection can be increased if the LLC operating agreement is written properly. Charging order protection protects the LLC and its assets from what happens to the member or members. It is different than the “corporate shield” which protects the owners of the corporation or LLC from the liabilities that arise in the company.
“Charging order protection is often referred as ‘outside in’ protection,” said Cavender. “I see more people losing their business today, because they get in trouble personally, than I am seeing people lose their personal assets, because their company gets in trouble,” he explained.
“The corporate shield is the same in a corporation or an LLC, but the charging order protection is not available in a corporation. Charging order protection is under attack, and the trend is to eliminate the charging order protection for a single member LLC,” said Phillips.
In the 2010 Olmstead case, the Florida Supreme Court struck down charging order protection for a single member LLC. A 2003 bankruptcy case, Albright, in Colorado set aside charging order protection for a single member LLC and allowed the creditors to come directly against the LLC’s assets. Utah Code specifically prohibits charging order protection for any single member LLC established in Utah.
“Since these cases were determined and Utah passed its LLC laws, many people have said that a single member LLC won’t give any charging order protection. That’s not true in 47 states,” said Phillips. “However, to be safe it wouldn’t be a bad idea to have more than one member in an LLC,” he continued.
The Uniform LLC Code of 2006 specifically gives a single member LLC charging order protection. However, Phillips points out, “The degree of charging order protection LLC owners get, even with multiple member LLCs, is largely dependent upon how the LLC operating agreement is written. There are lots of provisions that can be tweaked to give the LLC more charging order protection.”
“The audio tutorial that LegaLees Corporation has prepared to help people understand, write, and maintain LLCs, goes into depth explaining charging orders. It is one of the few sources of detailed education on preparing an LLC operating agreement to maximize charging order protection,” he said.
Those that want to learn more can visit http://www.llcwizard.com