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Charging Orders: Is a Creditor of an LLC Member Necessarily a Creditor of the LLC? (Part II)

July 26, 2016

Merrill Ranch Properties, LLC v. Austell[1] involved a bank loan to an LLC, secured by certain property in Arizona and guaranteed by an affiliated individual and eight trust entities he controlled.  At some point, the loan was declared in default and the bank filed a lawsuit in Arizona against the borrower and the guarantors to recover the balance of the loan.  The lawsuit eventually settled.  Subsequently, however, the plaintiff discovered that shortly after the loan was declared in default, three LLCs with corporate relationships to the guarantor transferred certain assets to various newly-created entities that were, in turn, directly or indirectly owned by trusts controlled by the guarantor.  … Read the rest

Charging Orders: Is a Creditor of an LLC Member Necessarily a Creditor of the LLC? (Part I)

July 19, 2016

In our previous blog series on Comparison of LLC Statutes, we briefly touched on the concept of LLC charging order.  In many states, including Delaware, New York, and Texas, a creditor with a judgment against an LLC member can apply for a charging order to satisfy the judgment.  That way, the creditor gets the right to receive distributions from the LLC to which the debtor/member would otherwise have been entitled.  A charging order may or may not be the exclusive remedy by which a creditor may satisfy a judgment out of the debtor’s LLC interest, depending on the jurisdiction, and this can make a big difference if the LLC does not make any distributions.… Read the rest

Can a Partner Be Held Liable for a Partnership Debt in Texas? (Part III)

June 9, 2016

In our previous post, Can a Partner Be Held Liable for a Partnership Debt in Texas?, we discussed the Texas Supreme Court’s holding in American Star Energy and Minerals Corporation v. Stowers[1] that a creditor cannot sue individual partners to satisfy a partnership debt until a judgment is passed against the partnership and goes unsatisfied for 90 days.  There is another part of the story.  The partners argued that the court’s holding imposed “automatic” liability– basically claiming that the court undermined their due process rights on grounds that they should have been named and served in the lawsuit against the partnership so that they would be on notice of their potential liability and have an opportunity to contest it.… Read the rest

Can a Partner Be Held Liable for a Partnership Debt in Texas? (Part II)

June 2, 2016

In American Star Energy and Minerals Corporation v. Stowers,[1] four partners formed a general partnership called S&J Investments (“S&J”) to invest in oil and gas properties.  S&J contracted with  American Star Energy and Minerals Corporation (“American”) to operate these properties.  Subsequently, American sued S&J for breach of contract, which resulted in a final judgment in the amount of $227,884.46 against S&J in 2008.  It turned out that S&J was undercapitalized and unable to satisfy the judgment debt, so in 2010, American brought another action seeking a judgment against the partners individually. … Read the rest

Charging Orders: Is a Creditor of an LLC Member Necessarily a Creditor of the LLC? (Part II)

May 31, 2016

Merrill Ranch Properties, LLC v. Austell[1] involved a bank loan to an LLC, secured by certain property in Arizona and guaranteed by an affiliated individual and eight trust entities he controlled.  At some point, the loan was declared in default and the bank filed a lawsuit in Arizona against the borrower and the guarantors to recover the balance of the loan.  The lawsuit eventually settled.  Subsequently, however, the plaintiff discovered that shortly after the loan was declared in default, three LLCs with corporate relationships to the guarantor transferred certain assets to various newly-created entities that were, in turn, directly or indirectly owned by trusts controlled by the guarantor.  … Read the rest

Can a Partner Be Held Liable for a Partnership Debt in Texas? (Part II)

May 26, 2016

In American Star Energy and Minerals Corporation v. Stowers,[1] four partners formed a general partnership called S&J Investments (“S&J”) to invest in oil and gas properties.  S&J contracted with  American Star Energy and Minerals Corporation (“American”) to operate these properties.  Subsequently, American sued S&J for breach of contract, which resulted in a final judgment in the amount of $227,884.46 against S&J in 2008.  It turned out that S&J was undercapitalized and unable to satisfy the judgment debt, so in 2010, American brought another action seeking a judgment against the partners individually. … Read the rest

Charging Orders: Is a Creditor of an LLC Member Necessarily a Creditor of the LLC? (Part I)

May 24, 2016

In our previous blog series on Comparison of LLC Statutes, we briefly touched on the concept of LLC charging order.  In many states, including Delaware, New York, and Texas, a creditor with a judgment against an LLC member can apply for a charging order to satisfy the judgment.  That way, the creditor gets the right to receive distributions from the LLC to which the debtor/member would otherwise have been entitled.  A charging order may or may not be the exclusive remedy by which a creditor may satisfy a judgment out of the debtor’s LLC interest, depending on the jurisdiction, and this can make a big difference if the LLC does not make any distributions.… Read the rest

Can a Partner Be Held Liable for a Partnership Debt in Texas? (Part I)

May 19, 2016

In our previous blog series on general partnership, we talked about what general partnership is and why it is important for business owners to know about it.  We wrote that, despite the advent of limited liability companies (LLCs), business owners frequently form a general partnership, oftentimes without even realizing it.  Generally speaking, partners in a general partnership are jointly and severally liable, and each partner is personally and individually liable for the entire amount of all partnership obligations.  For example, if your partnership owes an amount to a supplier, you, along with the other individual partner(s), would be personally liable if the partnership fails to pay the supplier– whether you intended to be a partner or whether you knew you were exposed to such liability.… Read the rest

All postings are intended to be planning tools to familiarize readers with some of the high-level issues discussed therein. No posting is intended to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.