Nevada's Corporate Charging Order: Less There than Meets the Eye
5 Pages Posted: 29 May 2008 Last revised: 4 Jun 2008
The charging order has long been a feature of unincorporated business organizations such as the partnership, the limited partnership and the limited liability company. In that realm, the charging order serves two purposes. First, it protects the capital lock-in attributes of the organization by precluding a creditor of an individual owner from seizing assets of the entity in order to satisfy that owner's personal indebtedness. Further, it buttresses the choose your partner rule by making clear, especially in the most modern acts, that the judgment creditor may not exercise management rights with respect to the organization. Until 2007, the charging order was uniquely a creature of the unincorporated business organizations. However, in that year, Nevada added a charging order provision to its business corporation act with the avowed purpose of making it more difficult for a judgment creditor of a shareholder in a Nevada corporation to become the title-owner of the stock therein. This article briefly reviews the history of the charging order in general and in detail review the Nevada business corporation charging order, demonstrating that, consequent to a failure to understand the environment in which the charging order has traditionally operated, namely one in which management and equity rights are structurally distinct, it will in fact not be effective to achieve its stated purpose.
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