In Kriti Ripley, LLC v. Emerald Invs., LLC, No. 27277, 2013 WL 3200596 (S.C.), the South Carolina Supreme Court ordered the foreclosure of the limited liability company interest of one member to pay the member's debts. The ruling was based on S.C. Code Ann. § 33-44-504, which states:
SECTION 33-44-504. Rights of creditor.
(a) On application by a judgment creditor of a member of a limited liability company or of a member's transferee, a court having jurisdiction may charge the distributional interest of the judgment debtor to satisfy the judgment. The court may appoint a receiver of the share of the distributions due or to become due to the judgment debtor and make all other orders, directions, accounts, and inquiries the judgment debtor might have made or which the circumstances may require to give effect to the charging order.
(b) A charging order constitutes a lien on the judgment debtor's distributional interest. The court may order a foreclosure of a lien on a distributional interest subject to the charging order at any time. A purchaser at the foreclosure sale has the rights of a transferee.
(c) At any time before foreclosure, a distributional interest in a limited liability company which is charged may be redeemed:
(1) by the judgment debtor;
(2) with property other than the company's property, by one or more of the other members; or
(3) with the company's property, but only if permitted by the operating agreement.
(d) This chapter does not affect a member's right under exemption laws with respect to the member's distributional interest in a limited liability company.
(e) This section provides the exclusive remedy by which a judgment creditor of a member or a transferee may satisfy a judgment out of the judgment debtor's distributional interest in a limited liability company.
Other states, including Delaware, have made a charging order (essentially ordering the garnishment of the debtor-member's distributions) the exclusive remedy for creditors of the member of an LLC. See, e.g., 6 Del. C. § 18-703(d). In fact, the 2013 amendments to the Delaware LLC Act make clear that a charging order is the exclusive remedy regardless of whether the LLC is single-member or multi-member.
People concerned about protecting the ownership structure of a limited liability company should ensure that the state in which they have chosen to form their entity offers appropriate legal protections.