Charging Orders for Corporations

April 13, 2006

	Visited: 131
	Not rated
	Rate:

In theory, the relationship among corporate shareholders is an impersonal one (as opposed to that in a partnership or limited liability company). Therefore, when satisfying an owner's personal debt liability, the law allows a creditor who has acquired the shares through attachment to participate in management of the corporation.

Thus, the creditor may vote the shares in favor of liquidation, or in other ways unfavorable to the debtor's interests. In a small, closely held corporation, this is a real possibility.

Warning

When you hold a majority interest in the corporation, and this interest is attached by a creditor with a charging order, your creditor may vote to liquidate the business to satisfy the debt.

Even setting up your corporation as a statutory close corporation does not eliminate the risk that personal creditors of the owner will be able to attach and then vote the shares in favor of a liquidation of the business.