ULLCA Section 503

Code CodeULLCASection503


Reporter's Comment to Section 503 generally

By its terms, this section does not apply to foreign limited liability companies. See Section 102(8) (defining "[l]imited liability company" to mean "an entity formed under this [act] or which becomes subject to this [act]") (emphasis added); see also Fannie Mae v. Heather Apartments Ltd. P'ship, A13-0562, 2013 WL 6223564, at *6 (Minn. Ct. App. Dec. 2, 2013) (considering the remedies available to a judgment creditor with respect to the judgment debtor's interest in a Cook Islands LLC; rejecting the debtor's argument that the creditor's "only remedy is to obtain a charging order under" [the Minnesota LLC statute]; explaining that "this argument fails because that statute only applies to Minnesota limited liability companies" which that statute "defines . . . as 'a limited liability company, other than a foreign limited liability company, organized or governed by this chapter'") (emphasis added) (statutory citations omitted).
The operating agreement has no power to alter the provisions of this section to the prejudice of third parties. Section 105(c)(15).

Reporter's Comment to Section 503 generally

Under this section, the judgment creditor of a member or transferee is entitled to a charging order against the relevant transferable interest.
While in effect, that order entitles the judgment creditor to whatever distributions would otherwise be due to the member or transferee whose interest is subject to the order.
However, the judgment creditor has no say in the timing or amount of those distributions.
The charging order does not entitle the judgment creditor to accelerate any distributions or to otherwise interfere with the management and activities of the limited liability company.


Section 503 is the only section of the ULLCA that deals with charging orders. Section 503 does not, however, exist in the abstract, but must instead be carefully interpreted in accordance with its preceding § 502 which relates to transfers of transferable interests, and the definition of "distribution" found in § 102(4). Frankly, reading § 503 will make a whole lot more sense if you substantially understand those other sections first.
The effect of a charging order is to combine two traditional remedies (why we just don't use those remedies instead, I am not particularly sure), being (1) attachment of the interest, meaning that an involuntary lien in favor of the creditor is placed on the debtor's interest, and (2) a non-wage garnishment, or "assignment order" in some states, of any distributions made to the debtor.
And now, a quibble with the Reporter's Comments. The Reporter writes: "By its terms, this section does not apply to foreign limited liability companies." What the Reporter doesn't say is that this is the result of a significant drafting flaw in the ULLCA (and also in the UPA and the ULPA), since there is utterly no reason -- and certainly no good one -- why the provisions of Article V and sections 502 and 503 in particular should not apply to foreign (out-of-state) or even alien (out-of-country) LLCs just as they would to any in-state LLCs. It is a mistake, an error, a FUBAR.