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State Law Protection for Business Interests Against Personal Creditors

April 13, 2006

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When choosing a state in which to form your business entity, you need to weigh the relative advantages and disadvantages of the laws in certain states.

Some states do not offer adequate protection for the owner's business interest in a limited liability company (LLC) against the claims of the owner's personal creditors. These states model their LLC statute's charging order remedy on the general partnership provision that allows for foreclosure of the interest and forced liquidation of the business.

Many states, including Delaware and Nevada, offer protection for the business interest. These states model their LLC statutes on the charging order concept found in the Revised Uniform Limited Partnership Act (RULPA). If the business owner's home state does not offer this business interest protection, serious consideration should be given to forming an LLC in a state that does offer such protection.

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