Why
Forming an LLC in Georgia is the Right
Choice for Most Small Businesses
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The Georgia limited liability
company "charging order" concept is
one of reverse liability protection.
Most Georgia business owners form a
Georgia limited liability company so
that they can protect their personal
assets (home, savings, car, etc.)
from being lost due to liability
arising from operating their Georgia
limited liability company business. However, another unique benefit of using a Georgia limited liability company to operate a business is that the assets and value built by the business is protected from being lost due to personal liability of an owner (the Georgia LLC Member. This is known as charging order protection and is currently only available to a multi-member Georgia limited liability company. If you are running a single member Georgia limited liability company and this kind of reverse protection is important to you, you should consider adding another member to your single member Georgia limited liability company. The Georgia limited liability company charging order basically states that if a judgment creditor of a member seeks to gain control of the Georgia limited liability company ownership interests of that member, the creditor can obtain an order from a court to charge the member's limited liability company interest for the amount of the unsatisfied judgment. HOWEVER, the creditor only has the rights of an assignee of the Georgia limited liability company interest. Georgia LLC Act, Section 14-11-504. What this means is that the creditor that obtains a Georgia limited liability company charging order only has rights to receive distributions that are actually made by the Georgia limited liability company. The creditor has no rights to demand that a distribution be made and no right to make any decisions related to the management of the Georgia limited liability company. Accordingly, if the member who is subject to the liability was one who operated the Georgia limited liability company, he can continue to do so and decide not to distribute profits out to the members. The Georgia limited liability company charging order gets even better potentially! If the Georgia limited liability company is taxed as a pass through for federal income tax purposes, the creditor may be liable for income taxes generated by the Georgia limited liability company. . . even though the creditor did not receive any of the profits of the Georgia limited liability company. Given the strong protections of the Georgia limited liability company charging order for a member of a Georgia LLC, many creditors of the Members personally do not seek to foreclose on the membership interests owned by the member in a Georgia limited liability company. IMPORTANT NOTES: CHARGING ORDER PROTECTION DOES NOT APPLY TO A SINGLE MEMBER GEORGIA LIMITED LIABILITY COMPANY A 2003 federal bankruptcy court case (In Re Albright) has ruled that charging orders will not apply with respect to a single member limited liability company. Accordingly, until another case overrules this one, it is your safest bet to assume that charging order benefits do not apply to a single member limited liability company. CHARGING ORDER LAWS CAN VARY STATE TO STATE While Georgia limited liability company laws have a specific charging order provision, not all states have specific charging order provisions in their limited liability company laws so the rights may be limited is a judgment is obtained in another state. PROTECTION MAY BE COMPROMISED IN BANKRUPTCY Also, if the member who has been found personally liable for a liability files for federal bankruptcy, the Georgia limited liability company charging order protection may be altered by a bankruptcy court. Accordingly, it is another safe presumption to conclude that if bankruptcy is involved, the federal court’s decision may supersede or alter the state charging order rules. When starting an LLC in Georgia, GeorgiaBusinessFormation offers the fastest and complete service to forming a Georgia LLC which for a limited time includes an excellent eBook to teach you about what to do after formation to preserve limited liability protection. The LLC Expert, LLC IS NOT A LAW FIRM AND GEORGIABUSINESSFORMATION.COM SERVICES AND PRODUCTS DO NOT CONSTITUTE THE PRACTICE OF LAW OR THE RENDERING OF LEGAL ADVICE.
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