Charging Orders Against an Interest in a Company
A membership interest is personal property, but seizing it would hand a stranger a seat inside somebody else's business. The charging order is the compromise: a lien on distributions, with no control, no information rights and no claim on company assets.
The rule in short
A charging order directs a company to pay the judgment creditor whatever distributions would otherwise go to the debtor member, and constitutes a lien on the transferable interest. Most states make it the exclusive remedy against that interest. Minnesota, Florida and California allow the court to foreclose the lien where distributions will not satisfy the judgment within a reasonable time; Delaware bars foreclosure outright, including for a single-member company.
A judgment debtor who owns a share of a limited liability company or a partnership owns something awkward. The interest is personal property and has value, but selling it at a sheriff's auction would put a stranger inside a business whose other owners never agreed to that. Every state resolves the tension the same way in outline, through a charging order, and then diverges sharply on how far the creditor may push.
What the order captures
The remedy is narrow by design. On application by a judgment creditor of a member, the court charges the debtor's transferable interest and requires the company to pay over to the creditor any distribution that would otherwise have gone to the member. The order constitutes a lien on that interest. What the creditor receives is the stream, if there is one, and nothing else.
What the creditor does not receive is more important. There is no right to vote, to participate in management, to inspect records as a member, to compel a distribution or to reach the company's own property. Delaware states the last point directly, providing that no creditor of a member has any right to obtain possession of, or exercise remedies against, the property of the limited liability company. The company continues to operate as though nothing had happened, except that a check now goes to a different address.
The same structure applies across entity forms. Limited partnerships, general partnerships and, in most states, limited liability partnerships all use a charging order against the partner's transferable interest, and the statutes are drafted in nearly identical language because they descend from the same uniform acts. Corporate shares are the exception: they are ordinary personal property, seized and sold under the general execution statutes, with no charging order in sight.
The exclusive remedy statutes
Most states go further and close off the alternatives. Delaware provides that the entry of a charging order is the exclusive remedy by which a judgment creditor may satisfy a judgment out of the interest, and that attachment, garnishment, foreclosure and other legal or equitable remedies are not available, whether the company has one member or several. Minnesota and Florida use the same exclusive-remedy language with their own exceptions.
That is a substantial protection, and it is one reason business interests behave differently from other property in enforcement. A creditor who could ordinarily obtain a writ and have an officer seize an asset has no such route here. The statutes also preserve the debtor's exemption rights against the interest, so a state exemption that would cover it is not displaced by the charging order procedure.
These statutes govern how a judgment is satisfied out of the member's interest. They say nothing about claims that the company itself is liable, that assets were moved into it to defeat creditors, or that the entity should be disregarded on ordinary grounds. A transfer of property into a company after a debt arose is examined under the voidable transfer statutes rather than under the charging order rules, and those inquiries run on their own track.
Where foreclosure is permitted
The main division among the states is whether the lien can be foreclosed. Minnesota allows it on a showing that distributions under the charging order will not pay the judgment within a reasonable time, and provides that the purchaser at the sale takes only the transferable interest, does not become a member, and remains subject to the transferee provisions. California permits the same result, and additionally allows the court to appoint a receiver of the distributions with power to make the inquiries the member could have made.
Florida keeps the exclusive-remedy rule as its baseline and departs from it in stated circumstances: where the creditor shows distributions will not satisfy the judgment within a reasonable time, the charging order is no longer the sole remedy, and the statute deals separately with a sole-member company. Delaware refuses foreclosure in all cases and says so expressly for single-member companies, which is the sharpest contrast in this area.
The single-member company is where the policy argument concentrates. The traditional justification for the charging order is protecting innocent co-owners from an unwanted partner, and a company with one member has none to protect. Several states have responded by relaxing the exclusive-remedy rule in that situation; Delaware went the other way and legislated the protection expressly. Courts applying another state's statute to a company formed in Delaware have to decide which state's law governs the question, and the answer is not uniform.
| State | Exclusive remedy | Foreclosure of the lien |
|---|---|---|
| Delaware | Yes, for one member or many | Expressly unavailable |
| Minnesota | Yes | Allowed on a reasonable-time showing |
| Florida | Yes, with stated exceptions | Available on the same showing |
| California | Charging order is the route to the interest | Allowed, with a receiver as an alternative |
| Federal court | Follows the state where the court sits | Follows the state where the court sits |
How the order is obtained and ended
The application is made in the enforcement proceeding rather than by a new action, and the company is normally served so that it knows where to send the money. A federal creditor uses the procedure of the state where the court sits. Courts may make whatever further orders are necessary to give the charging order effect, and the receiver appointment is the most common of them.
Two exits are built into the statutes. The debtor may extinguish the charging order by satisfying the judgment and filing a certified copy of the satisfaction with the issuing court. And at any time before foreclosure, the company or the other members may pay the creditor the full amount due and succeed to the creditor's rights, including the charging order itself, which lets a business buy out an unwelcome claimant and hold the position against its own member.
Why the remedy often produces nothing
A charging order is only as good as the distribution policy of a company the creditor cannot control. Managers who stop distributions leave the order dormant, and the debtor may continue to draw compensation as an employee, which is reached instead by a wage garnishment and subject to those ceilings. The order sits there, accruing nothing.
Creditors who anticipate that usually do two things. They record and pursue the ordinary remedies first, since a recorded lien on real property costs little and holds a position. And they use the discovery available after judgment to establish what the company actually pays out and to whom, because a pattern of distributions to other members while the debtor's share is charged is the kind of fact that supports a request for foreclosure or a receiver in the states that allow one.
Points to carry away
- A charging order reaches distributions to the member, not the assets the company owns.
- The order is a lien on the transferable interest and confers no management or voting rights.
- Most limited liability company statutes make the charging order the exclusive remedy against the interest.
- Several states permit foreclosure of the lien where distributions will not satisfy the judgment in reasonable time.
- Delaware forbids attachment, garnishment and foreclosure whether the company has one member or many.
Questions readers ask
Can a creditor force the company to make a distribution?
No. A charging order attaches to distributions if and when they are made, and nothing in the statutes obliges the managers to declare one. A company that retains its earnings can leave a charging order producing nothing indefinitely, which is the central weakness of the remedy. Courts have limited tools here: they can appoint a receiver of the distributions, make orders necessary to give the charging order effect, and in some states foreclose the lien, but none of that converts into a power to direct company finances.
Does the creditor see the company's books?
Only in a limited way. The charging order makes the creditor a claimant on distributions rather than a member, and member information rights do not transfer with it. Several statutes allow the court to appoint a receiver of the distributions with power to make all inquiries the debtor member could have made, which is the usual route to any visibility at all. Absent that appointment the creditor typically knows only what the company reports when a distribution is paid over.
What does a buyer get at a foreclosure sale of the interest?
Only the transferable interest. Minnesota states it plainly: the purchaser obtains the transferable interest, does not become a member, and remains subject to the statute governing transferees. The buyer therefore acquires the same passive right to distributions the creditor held, permanently rather than until the judgment is paid, along with the tax consequences that can follow allocated income. That combination keeps prices at these sales low and makes foreclosure a pressure tactic more often than a payday.
Sources
- California Corporations Code § 17705.03Authorizes the charging order, receivership of distributions and foreclosure on a stated showing.
- 6 Delaware Code § 18-703Makes the charging order the exclusive remedy and bars foreclosure whether there is one member or more.
- Florida Statutes § 605.0503States the exclusive remedy rule and the exceptions, including a sole-member company.
- Minnesota Statutes § 322C.0503Permits foreclosure and confirms the purchaser takes only the transferable interest.
- California Code of Civil Procedure § 708.310Places the charging order among the enforcement remedies available after a money judgment.
- Federal Rule of Civil Procedure 69Requires a federal creditor to use the enforcement procedure of the state where the court sits.
Rapid Response Law is a publication, not a law firm. This article states general rules and cites its sources; it is not advice about any particular case, and the law differs by state and changes over time.
More in Judgment Enforcement
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Protected Funds Once They Reach a Bank Account
A bank served with a garnishment order must review the account for federal benefit deposits over a two-month lookback and leave a protected amount accessible, with no requirement that the account holder assert an exemption. Social Security and veterans benefits carry their own statutory shields. Exempt wages deposited into an account are protected in some states if they can be traced, and lost when they cannot.
Reaching Assets in Another State
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