Opinion ID: 2340356
Heading Depth: 1
Heading Rank: 9

Heading: Statutory framework for Nevada LLCs

Text: The rules governing the formation and operation of Nevada LLCs are set forth in NRS Chapter 86. [5] Those who wish to enter into an LLC should be vastly familiar with this chapter in order to properly protect their interests. In considering the question at issue, we focus on the provisions in Chapter 86 that set forth the organization and management of an LLC, as well as the authorization of a charging order remedy for personal creditors of LLC members. In Nevada, an LLC is formed by signing and filing the articles of organization, together with the applicable filing fees, with the Secretary of State. NRS 86.151; NRS 86.201. An LLC may, but is not required to, adopt an operating agreement, NRS 86.286, which is defined as any valid written agreement of the members as to the affairs of a limited-liability company and the conduct of its business. NRS 86.101. [6] Unless the articles of organization or operating agreement provide otherwise, management of a limited-liability company is vested in its members in proportion to their contribution to capital. NRS 86.291. A member is the owner of a member's interest in a limited-liability company or a noneconomic member. NRS 86.081. The term [m]ember's interest is defined as a share of the economic interests in a limited-liability company, including profits, losses and distributions of assets. NRS 86.091. The collection rights and remedies against a member's interest in a limited-liability company are governed by NRS 86.401. This provision recognizes the charging order as a remedy by which a judgment creditor of a member can seek satisfaction by petitioning a court to charge the member's interest with the amount of the judgment. NRS 86.401(1); see Brant v. Krilich, 835 N.E.2d 582, 592 (Ind.Ct.App.2005) (holding that a charging order is the only remedy for a judgment creditor against a member's interest in an LLC, after interpreting a similar Indiana statute). A charging order directs the LLC to make distributions to the creditor that it would have made to the member. See 91st Street v. Goldstein, 114 Md. App. 561, 691 A.2d 272, 282 (Md.Ct. Spec.App.1997). As a result, a charging order affects only the debtor's partnership interest and does not permit a creditor to reach partnership assets. Charging orders originated as a statutory solution to cumbersome common law collection procedures `that were ill-suited for reaching partnership interests.' Green v. Bellerive, 135 Md.App. 563, 763 A.2d 252, 256 (Md.Ct.Spec.App.2000) (quoting 91st Street, 691 A.2d at 275). [7] The charging order concept was first established in the United States in the 1914 Uniform Partnership Act and has since been replicated in some degree in nearly every United States jurisdiction, including Nevada. 91st Street, 691 A.2d at 275; See NRS 86.401; NRS 88.535 [8] (NRS Chapter 88 contains Nevada's partnership statutes). Charging orders have been described as nothing more than a legislative means of providing a creditor some means of getting at a debtor's ill-defined interest in a statutory bastard, surnamed `partnership,' but corporately protecting participants by limiting their liability as [ ] corporate shareholders. Bank of Bethesda v. Koch, 44 Md. App. 350, 408 A.2d 767, 770 (Md.Ct. Spec.App.1979). In short, [a] charging order gives the charging creditor only limited access to the partnership interest of the indebted partner. Green, 763 A.2d at 257. Consequently, the judgment creditor does not unequivocally step into the shoes of a limited-liability member. Id. at 259. The limited access of a judgment creditor includes  only the rights of an assignee of the member's interest. NRS 86.401(1) (emphasis added). A judgment creditor, or assignee, is only entitled to the judgment debtor's share of the profit and distributions, takes no interest in the LLC's assets, and is not entitled to participate in the management or administration of the business. Dixon v. American Industrial Leasing Co., 157 W.Va. 735, 205 S.E.2d 4, 9 (1974); see In re Lucas, 107 B.R. 332, 336 (Bankr.D.N.M.1989) (stating that [a]ny assignee of the [membership] interest merely entitles the assignee to receive the profits to which the [member] would otherwise be entitled); Kellis v. Ring, 92 Cal.App.3d 854, 155 Cal.Rptr. 297, 299 (1979) (stating that [w]hile [the judgment creditor] has a right to receive the share of the profits or other compensation by way of income, or the return of his contributions to which his assignor would otherwise be entitled, he has no right to interfere in the management of the limited partnership (internal quotations omitted)); Madison Hills Ltd. v. Madison Hills, Inc., 35 Conn.App. 81, 644 A.2d 363, 367 (1994) (noting that a charging creditor does not become a full partner, [and] is not entitled to manage the partnership); Olmstead v. F.T.C., 44 So.3d 76, 79 (Fla.2010) (providing that an assignment of a membership interest will not necessarily transfer the associated right to participate in the LLC's management); Green, 763 A.2d at 260 (holding that the fundamental management rights of a partner are not transferred to a judgment creditor by a charging order); see also J. Gordon Gose, The Charging Order Under the Uniform Partnership Act, 28 Wash. L.Rev. 1, 13 (1953) (noting that a receiver does not become a partner or participate in the management). [9] After the entry of a charging order, the debtor member no longer has the right to future LLC distributions to the extent of the charging order, but retains all other rights that it had before the execution of the charging order, including managerial interests.