MBE Rules · Business Associations
LLC Charging Orders
Cal. Corp. Code § 17705.03
The rule
A judgment creditor of an LLC member obtains only a charging order (a lien on distributions); foreclosure yields the transferable interest, never management rights — the exclusive remedy protecting co-members.
In plain English
A charging order allows a judgment creditor to receive distributions from an LLC member's interest, but it does not grant them management rights or control over the LLC. This means that while the creditor can collect money owed to the member, they cannot participate in the management or decision-making of the LLC.
Worked example
John is a member of an LLC that has been ordered to pay a judgment of $100,000. His creditor obtains a charging order, allowing them to receive any distributions John would have received from the LLC. However, the creditor cannot interfere with the management of the LLC or make decisions on behalf of John. The outcome is that the creditor can only collect distributions, not take over management.
Memory hook
Charging orders: cash flow, not control.
The trap
Exams may present scenarios where students confuse a charging order with full ownership rights, leading them to incorrectly assume the creditor can manage the LLC. Pay close attention to the distinction between financial interest and management rights.
How examiners test it
Questions often involve a scenario where a member faces a judgment, and students must determine the implications of a charging order on both distributions and management rights within the LLC.
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