An inside liability comes from assets owned by the company or from behavior performed by the company. These liabilities are trying to get up and out to your personal assets. An outside liability, on the other hand, comes from assets owned by you, individually, or from your individual behavior. These liabilities are trying to get down and in to your company.
With inside liabilities, the “corporate shield” will often prevent these lawsuits from invading your personal assets. This is true for corporations and LLCs. However, if you are personally responsible for an outside liability, will the assets in the company be subject to liquidation? Once you have lost the lawsuit, you will be examined in the Debtor’s Exam. In that examination, the opposing party may ask you virtually any question it wants regarding what assets you owned.
If you own a Nevada LLC, the judge can only issue a charging order to the creditor. This means if and when there is a distribution from the LLC to the owner, that distribution will belong to the creditor. Until the passing of Senate Bill 242 (codified as NS 21.090 and 78.746), charging order protection was limited to LLCs and partnership entities. Now, closely-held corporations enjoy the same protection!
If properly formed, the manager of the LLC will be the only one who determines if there is going to be a distribution. If there is a charging order outstanding, the manager (client) will not make a distribution so the creditor receives no assets. To make matters worse, the creditor may be liable for any income taxes of the LLC under IRS Revenue Ruling 77-137.
Tiffany N. Ballenger, Esq.