Limited Liability Company (LLC) as Asset Protection Device

So your Ohio Limited Liability Company has been properly established, you are not commingling funds or assets, and business is going well, when disaster strikes and your find yourself on the wrong side of a lawsuit (i.e. a defendant). The situation goes from bad to worse when you lose the lawsuit and a judgment is entered against you (perhaps you ignored the summons and did not respond within the time required, or the facts were not in your favor). Before long, the winning party, now a creditor, is attempting to collect on that judgment and you are attempting to figure out the extent of your financial exposure and if your company is at risk.

Let's assume that you took the necessary steps to ensure that your limited liability company is a distinct and separate entity from you as an individual (Check out these previous posts: http://generallygoodadvice.blogspot.com/2012/08/does-your-llc-really-limit-your.html; and http://generallygoodadvice.blogspot.com/2012/10/commingle-funds-and-your-liability.html). In Ohio, Code Section 1705.19 provides that a "charging order" is the sole and exclusive remedy that a judgment creditor may seek to satisfy a judgment against the membership interest of a member. This applies equally to a single-member limited liability company and one with multiple members. That means the creditor cannot take control over the LLC's assets, and the creditor cannot demand a distribution. Rather, the creditor must apply to the court for a charging order and then is limited to LLC distributions, if they are made (practically speaking distributions will likely be made at some point). Depending upon the amount of the judgment and the details regarding your limited liability company (profits, leveraged assets, etc), a creditor may be reluctant to expend the time, legal resources and money to pursue the charging order. 

The obvious questions are:

1. Have you properly established your Limited Liability Company in Ohio (or multiple LLC's in many circumstances)?
2. Have you properly transferred the necessary assets to your LLC?
3. Once the assets are transferred, have you taken additional steps to minimize their exposure and increase the protection of those assets?

And most importantly, if and when you receive a summons (or any legal document for that matter), contact a lawyer immediately to discuss your rights and any exposure you or your company may have. 

At Hallowes & Ebbeskotte, LLC, our Ohio business law attorneys are well versed in evaluating and providing guidance to business owners. If you have questions about your business, or would like us to review the structure of your limited liability company and establish an asset protection plan for you, contact me at josh@thehelawfirm.com or (614) 759-4603. Also, feel free to subscribe to this blog moving forward so I can keep you up to date and informed.