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A charging order redirects a partner or LLC member's distributions, if any, to a creditor. These court orders are frequently used when an LLC or partnership interest has been pledged to a creditor as collateral and the debtor is in default.
Charging orders differ substantially from liens on corporate stock because charging orders do not allow the creditor to foreclose on the LLC or partnership interest but only claim distributions from the entity. The creditor does not succeed to any other rights of the LLC member – voting rights, management rights – and is totally dependent on the entity to make distributions.
This program provides a real-world guide to the uses and limitations of charging orders in transactions and tips on enhancing their effectiveness.
- What does a creditor get with a charging order and what rights does the debtor retain?
- Impact of charging orders on the entity
- Enhancing the enforceability of charging orders
- Enforcement of one state's charging order statute in another state
- Tax consequences of charging orders