A debtor's LLC: charging orders and their limits

The charging order

A judgment against the member reaches the member's share, which is a right to be paid money, not a claim on any brick the company owns.

Property an LLC buys is the LLC's property, and a member has no interest in any specific piece of it. Both halves are in Fla. Stat. 605.0110¹. New York says it from the creditor's side: no creditor of a member has any right to possess, or to use legal or equitable remedies against, the property of the LLC. LLC Law 607(b)². So the building is off the table from the start, and what remains is the share.

What a Florida member holds is a transferable interest, which is the right to receive distributions under the operating agreement, and it is personal property. That is Fla. Stat. 605.0501³. On a judgment creditor's application, a Florida court may enter a charging order against that interest under Fla. Stat. 605.0503(1)⁴. It is a lien on the interest, and it requires the LLC to pay the creditor what it would otherwise have paid the debtor. New York runs the same engine: the court may charge the member's interest with the unpaid judgment, and to that extent the creditor has only the rights of an assignee. LLC Law 607(a).

An assignee in New York gets the money and nothing else. No part in management, no becoming a member, only the distributions and the allocations of profit and loss the assignor would have received. LLC Law 603(a)⁵. A Florida transferee is in the same place under Fla. Stat. 605.0502⁶: no management, generally no access to records, only the distributions the transferor would have gotten. A charging order follows the cash, and the cash is all it follows.

Two things sit at the edge of this. In Florida, apart from the single-member case, the charging order is the sole and exclusive remedy for satisfying a judgment from an LLC interest or its distributions. That is Fla. Stat. 605.0503(3). And neither state's act strips away exemption laws that apply to the member's interest. Fla. Stat. 605.0503(2). LLC Law 607(a). A charging order over distributions that never come is a lien on a faucet nobody turns on.

Single-member LLCs

Florida carves out one exception, and it is the one that moves the building. New York's statute does not reach the question at all.

If the debtor is the LLC's only member, and the creditor shows that distributions under a charging order will not satisfy the judgment within a reasonable time, a Florida court may order the interest sold at a foreclosure sale. See Fla. Stat. 605.0503(4). The creditor may make that showing any time after the judgment, including at the moment it asks for the charging order. So the exception is not a last resort reached after years of empty distributions. It can be argued at the front door.

A sale changes who the company belongs to. The buyer gets the member's entire interest, not merely a transferee's rights, and becomes the member under Fla. Stat. 605.0503(5). The debtor ceases to be one. Fla. Stat. 605.0503(5)(c). That is as close as the charging-order regime comes to handing over the keys, and it is available only where there is a single member holding the whole thing.

Add a second member and the door closes. For a Florida LLC with more than one member, foreclosure on the debtor's interest is not available and a court may not order it. See Fla. Stat. 605.0503(6). The charging order over distributions is what is left.

New York's statute gives the charging creditor only an assignee's rights and says nothing about selling the interest. LLC Law 607(a). Whether a New York court may order a membership interest sold, for a single member or more, is not settled by the text. This page will not guess at it.

Piercing, briefly

Setting the company aside to reach its building is a different claim. The bar is much higher, and the hardest part of it is unanswered for an LLC.

Florida's charging-order section preserves what sits outside it. It does not limit fraudulent transfer law or the equitable principles of alter ego, equitable lien and constructive trust. Fla. Stat. 605.0503(7). If the building went into the LLC to defeat creditors, Florida proceedings supplementary can hear a chapter 726 fraudulent transfer claim, brought by supplemental complaint, and enter a money judgment against the transferee whether or not the transferee kept the property. Fla. Stat. 56.29(9)⁷.

Piercing itself is narrow, and the leading cases are about corporations. The Florida Supreme Court held that the veil may not be pierced without improper conduct: the corporation must have been organized or employed to mislead creditors or work a fraud on them, and the mere fact that one or two people own and control it is not enough. Dania Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114 (Fla. 1984). New York's Court of Appeals set a matching bar for corporations: complete domination used to commit a fraud or wrong against the plaintiff, with domination alone not enough, and the cases resist reduction to fixed rules. Morris v. New York State Department of Taxation and Finance, 82 N.Y.2d 135 (1993).

Both of those are forward piercing of a corporation, holding an owner liable for the entity's debt. The reader's situation runs the other way: reaching the company's building for the owner's debt. How those rules apply to an LLC, and whether a member's creditor may reverse pierce, no statute or opinion on this page answers for Florida or for New York. That is counsel's question, on counsel's facts.

What the record shows

The public filings confirm the shape of the problem and point at who stands behind the company, which is where the next step starts.

The deed names the LLC, not the debtor, as the owner. To be recorded in Florida, a conveyance other than a mortgage must carry the name and post-office address of each grantee and of each person who signed it, among other things, though the statute has exceptions. Fla. Stat. 695.26(1)⁸. In New York City, ACRIS party records give the names and addresses of the parties to each recorded document. ACRIS dataset 636b-3b5g. So the first thing the record proves is the one that matters most here: the member and the building are not the same owner.

Finding the members is harder in Florida than it looks. Articles of organization must state the name, principal office and registered agent, and member or manager names are optional. See Fla. Stat. 605.0201⁹. The annual report names at least one person with authority to manage the company, with the principal office and federal employer identification number. Fla. Stat. 605.0212(1)¹⁰. New York leans the other way for one narrow category: a deed of a residential building of up to four units to or from an LLC will not be accepted for the transfer tax return unless it comes with a document naming all the members, managers and other authorized persons. Tax Law 1409(a)(2)¹¹.

Discovery asks the question the register does not. Florida's fact information sheet for a business entity asks for each owner of 5% or more and for the officers, directors, members or partners. Fla. R. Civ. P. Form 1.977¹². What New York's Department of State record of an LLC shows, and whether it names the members, is not something this page can tell you. For how to work back from a recorded name to the people behind it, see entities and officers behind a name. Where the charging order stops, at the distributions, is where the record of the company and the people behind it starts to matter.