Collections from a Limited Liability Company

Our law firm is often asked by our business clients about the benefits in protection from individual personal liability as a result of organizing their small business as a Limited Liability Company. LLCs generally protect company debts from being attributable to a debtor personally. However, what about the converse? Can a debt owed by an individual who happens to own an LLC be collected  by going after assets of that owner’s business? Or can a debt against an individual owner of a first LLC be collected by seeking assets of a second, separate limited liability company where that company’s owner has an ownership interest?  In North Carolina, ownership interests in LLC are personal assets and they can be used to pay off judgments.

In North Carolina, a membership interest in a limited liability company is personal property of the owner.    An owner can grant a lien or security interest against all or part of a membership interest.While a member of an LLC does not have an interest in specific property of the LLC (office furniture, computers, bank accounts etc.), in theory any distributions to owners of an LLC can be seized via a court Order charging the LLC with payment to a creditor of the funds.

Now, for LLCs with members who may owe debts, receiving distribution of profits is different from the creditor actually becoming an “owner” of the company who has some say in how the company is run.  An assignee of a membership interest only can become a member by meeting the requirements set forth in the articles of organization or operating agreement or, if it’s not addressed, unanimous consent of the members.  So there are protections in place under North Carolina law that allow the company to continue to go about its business without being taken over by creditors who merely seek to be paid off of debts owed.

If you are a small business seeking to protect itself from liability, a company seeking to collect debt, or any one with a breach of contract or collection issue, contact the business litigation collection attorneys at Maginnis Law, PLLC at 919.526.0450 or submit a new confidential new case inquiry here.  Maginnis Law, PLLC is a Wake County business litigation law firm with lawyers handling matters in Raleigh, Cary, Apex, Wake Forest and other parts of the Triangle.