Organizing a business as a limited liability company (LLC) is beneficial for small businesses to protect individuals from personal liability. LLCs generally protect company debts from being attributable to a debtor personally. However, what about the converse? Can a limited liability company face collections for the owner’s personal debts? 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.
LLC Membership and Asset Collections
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. The membership is technically an asset, but not in the physical sense. It does not have an interest in specific property of the LLC such as office furniture, computers, bank accounts etc. Instead, creditors can seize monetary distributions of owners through a court order.
Receiving distribution of profits, however, is different from the creditor actually acquiring ownership of the company. An assignee of a membership interest only can become a member by meeting the requirements set forth in the articles of organization. This is an important distinction that prevents creditors from taking over the operations of the business generally or making decisions. A limited liability company with a member facing collections can still continue business as usual. The only difference is the distribution of profits is redirected for debt payment.
Representation for Small Businesses Facing Collections
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 Howard. Call us at (919) 526-0450 or submit a new confidential new case inquiry here. Maginnis Howard is a Wake County business litigation law firm with lawyers handling matters across North Carolina.