I know I’m late posting this. But, as the song says, Hey, it’s Christmas time, and I wanna be Santa Claus.
When we last met, we were discussing charging orders and favorable states. After discussing South Dakota and Delaware, let’s walk through what happens when a creditor strikes at an LLC (a limited liability company) for a member’s personal debt under Maryland law.
From an asset protection standpoint, Maryland laws are in the middle of the pack: It doesn’t provide LLCs with as much protection from a member’s personal creditors as some other states, but more than others.
Like almost everywhere else, Maryland doesn’t let creditors seize LLC money or property to pay off the personal debts or liabilities of LLC’s owners. It also allows creditors to obtain a charging order to collect on a judgment against an LLC member. Maryland creditors only obtain the owner-debtor’s financial rights and cannot participate in the LLC’s management.
Unlike others, Maryland allows a creditor to foreclose on the LLC interest. The court orders the member’s financial rights in the LLC be sold. The buyer becomes the new owner of the member’s financial rights, including the right to receive money from the LLC or obtain a share of the LLC’s assets if it is dissolved. However, the Court won’t let the buyer participate in management or order that any distributions of money or property be made.
While it is difficult and expensive; the ability to foreclose gives a creditor more leverage. But Maryland does not permit personal creditors of an LLC member to have a court order that the LLC be dissolved and its assets sold to pay off the creditor.
What About a Single-Member LLC?
Maryland does not make a distinction between multi-member and single-member LLCs, in part because of the right to foreclose on the financial interest. Also, the laws of other states that provide less protection to single member LLCs may be applied to a Maryland LLC. The best example of this is when a Maryland LLC does business or owns property in another state. In addition, the protections that state LLC laws provide to LLCs might be ignored by the federal bankruptcy courts if the LLC owner files for bankruptcy. This has occurred in at least one LLC bankruptcy case in Maryland.
We’ll wrap up this discussion next time. Until then, good luck and good hunting.
The Fisher Law Office is known for its experience in asset protection, business counselling and development, business succession planning, estate planning and probate administration. Annapolis attorney Randall D. Fisher has practiced for over 20 years, is licensed in Maryland, Texas, Wyoming and the District of Columbia, and has clients all over the country. He maintains the highest peer review rating for ethics (AV Preeminent) by Martindale-Hubbell, and is a sucker for long walks on the fairways.