Charging order protection
A Delaware LLC asset-protection feature limiting creditors remedies against member LLC interests.
Definition
Under 6 Del. C. § 18-703, a creditor of a Delaware LLC member can obtain only a charging order (right to receive distributions when made), not seizure of the LLC interest or forcing of LLC liquidation. Delaware charging order protection is among the strongest in the US.
Context
Important asset-protection feature, particularly for non-resident founders concerned about personal-creditor risk.
Example
A creditor of a Delaware LLC member obtains judgment against the member. The creditor can only charge the member distributions; they cannot force the LLC to distribute or liquidate.
Common pitfalls
- Charging order protection varies by state; some states allow stronger creditor remedies.
- Delaware is among the strongest charging-order-protection states.