So you’ve read my post about charging orders against Michigan LLCs and are thinking, “so what?!” Well, the key is not so much what it is, but whether it is the only remedy a creditor may have or just one of many.
Much review and comment has been made about a 2010 Florida case, Olmstead v FTC, 44 So 3d 76, and the effect it may have on the level of asset protection provided by a Single-Member Limited Liability Company. Why? Because the court determined that, under Florida law, a creditor is not limited to a charging order as a means of collecting on the judgment. That could mean the creditor could “step into the shoes” of the LLC Member, effectively taking all ownership in the company and directing it as the creditor sees fit. I think all Michigan LLC owners can agree, that’s a bad thing.
Well, Michigan business attorneys and the Michigan legislature were listening to the scuttlebutt. What came out of it was a change to Michigan law via a 2010 amendment to the Michigan Limited Liability Company Act (the MLLCA). Section 507 (MCL 450.4507) of the MLLCA now makes it clear that the charging order is the “exclusive remedy” by which a judgment creditor of a Member may satisfy a judgment out of a Member’s membership interest.
And THAT is a good thing for asset protection. It limits the creditor to distributions from the LLC. No distributions = nothing to the creditor. And the creditor is not able to have any say in the LLC’s actions . . . it leaves the Member in control of the company. And that is a great thing for Michigan business owners!
Important Note: there is still some belief that a court could find that a charging order is not the only remedy in certain circumstances involving a single-member LLC. Make sure to meet with a Michigan business lawyer before making any decisions.
Michael Lichterman is a relationship-based business attorney who leverages his business, marketing and legal knowledge to help business owners and entrepreneurs create a Foundation for Business Success™. This goes beyond merely drafting a set of documents – it’s about proactively preparing the business and the business owner for continued growth while remembering the “human side” of running a business. He best serves small business owners (less than 50 employees) and entrepreneurs. He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients and their businesses – many of which have become great friends and trusted confidants.