Ohio Limited Liability Company Gets a Boost in Protective Powers

Until recently, the Ohio limited liability company left much to be desired in its ability to protect company assets from members’ creditors. But recent updates to the law have changed all that, and our Ohio asset protection attorney’s office is now happy to recommend an Ohio LLC for asset protection purposes.

The issue that kept us from recommending an Ohio LLC to clients was that the law was unclear whether a creditor could seize a person’s assets owned by an LLC. In court cases where a creditor had obtained a judgment against a debtor whose assets were owned by an LLC, some judges ruled that the creditor could seize those assets and some said they could not. This made the Ohio limited liability company structure very unreliable for protecting assets.

When a LLC is used for asset protection purposes, ownership of the assets to be protected is transferred to the LLC — the LLC becomes the owner — and the asset owner becomes a member of the LLC. Because the owner is the LLC and not the individual members, creditors owed money by one of the members can’t seize those assets to pay the member’s debt. The only things a creditor can lay claim to are monetary distributions from the LLC to the member. The idea here, as with other corporate structures, is to prevent other members of the LLC from being penalized for one member’s debts and liabilities.

At least that’s the way it works when a state’s law is appropriately strong enough. Until May of this year, Ohio’s limited liability company laws were not strong enough to ensure the protection of assets against a creditor who obtained a judgment against one of an LLC’s members.

Protective Powers of an Ohio Limited Liability Company Strengthened Via HB 48

On May 4, Substitute House Bill 48 came into effect and added language to strengthen Ohio limited liability company laws. The law now clearly states that the only things a creditor can claim from an LLC are distributions to the debtor-member. A creditor cannot take over a member’s control of the company or seize any of the LLC’s assets. Protection of this sort is what Ohio asset protection attorneys look for when developing an asset protection strategy for clients.

Specifically, the Ohio law says:

“An order charging the membership interest of a member of a limited liability company is the sole and exclusive remedy that a judgment creditor may seek to satisfy a judgment against the membership interest of a member or a member’s assignee . . . No creditor of a member of a limited liability company or a member’s assignee shall have any right to obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the property of the limited liability company.”

You may wonder how protective such language really is since the creditor can still collect any payments or distributions to the debtor-member. The protection here lies in the fact that the creditor can’t force the LLC to make a distribution to the members. In most cases this means the creditor receives little or nothing from the Ohio limited liability company; all company earnings and assets remain in the LLC. Usually, when forming an LLC for asset protection, the client is assigned as manager of the LLC as well as being a member. This permits the client to have control over his or her protected assets.

If you have assets that need protecting:

In Ohio the asset protection attorney’s office of Gudorf Law Group, LLC, can help you form an Ohio LLC for asset protection purposes and develop a complete asset protection plan. Call us at 1-877-483-6730 to schedule a free consultation regarding formation of an Ohio limited liability company and asset protection.