Hey – That’s NOT Your Property! Even if you “Own” It!

Alright, so the heading is a bit misleading. But I really wanted you to read this post!

The simple fact is that  – when talking about Limited Liability Companies (LLCs) in Georgia – it is a true statement.  Kind of.

LLCs are a very popular form of incorporation. They can have one member or a hundred. And they can be created with the click of a button and payment to the Secretary of State, all without having to first create an underlying set of corporate documents.

Despite their simplicity, LLCs still have a wealth of advantages. This is one critical reason why they are a popular entity to protect assets and to structure various deals.

This is because the assets of an LLC (whatever it owns) belong to the LLC, not the LLC’s owners – even if there is only one owner!  The owner owns an interest in the LLC, not an interest in the LLC’s assets. See Veterans Pkwy. Developers LLC v. RMW Dev. Fund II LLC, 300 Ga. 99, 793 S.E.2d 398 (2016) (don’t get excited reading this parenthetical, the cite is just to a basic proposition of law). In Veterans Pkwy., the Supreme Court affirmed the denial of injunctive relief to a LLC’s member because it lacked a sufficient interest in the requested relief.

Under O.C.G.A. 14-11-501(a):

A limited liability company interest is personal property. A member has no interest in specific limited liability company property.

This simple rule is consistent with the basic principle of incorporation: a corporate entity and its owner(s) are separate and distinct, even if there is only one owner.

And within this framework of indirect ownership, the sole member of a LLC can lawfully “use[] and control the [LLC] to promote the [member]’s ends.” Dep’t of Transp. v. McMeans, 294 Ga. 436 (2014).

This “break” in ownership can be very helpful to protect assets. This is why it is critical for creditors to get guaranties or sureties for all appropriate assets – regardless of owner – and not just the borrower.

Otherwise, the creditor may be left with limited options, just like in one of my cases, Merrill Ranch Properties, LLC v. Austell, 336 Ga. App. 722, 784 S.E.2d 125 (2016), cert. denied, (October, 2016). Here, a creditor obtained a judgment against a borrower, but did not get a guaranty or judgment against an LLC allegedly owned and controlled by the borrower. So when the creditor tried to collect the judgment from the LLC, its effort failed.

When a creditor obtains a judgment against a member, it may obtain a charging order against the member’s interest in the LLC. This charging order – when construed with the basic premise that a member does not own the LLC’s assets – simply establishes that the creditor only gets what the member might otherwise get from the LLC:

[a] charging order gives no direct remedy against company property, [cit. omitted], and company assets would not be subject to satisfaction of a member’s individual debt.

Id. (citing Gaslowitz v. Stabilis Fund I, LP, 331 Ga. App. 152 (2015)).

Thus, from the limited liability company’s standpoint, it is business as usual except that any distributions to the member subject to the charging order are diverted to the judgment creditor.

Id. (quoting Mahalo Investments III, LLC v. First Citizens Bank & Trust Co., Inc.) (bold in original).

Just a little something to keep in mind next time you are in court trying to obtain or collect a judgment . . .

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