What is the Charging Order Protection in Texas?
Texas LLCs receive standard charging order protection under Tex. Bus. Org. Code § 101.112. When a creditor obtains a judgment against an LLC member, their remedy is limited to a charging order—a court directive to pay the member's distributions to the creditor instead. The creditor cannot seize the membership interest, force liquidation, participate in management, or access LLC records. This protection shields the LLC's operations and other members from individual member debt.
How Charging Orders Work
Under § 101.112, a charging order is the creditor's exclusive remedy against a member's interest. The creditor becomes an assignee of the member's distribution rights only—not a member with voting or management authority. If the LLC makes no distributions, the creditor receives nothing. The creditor cannot compel distributions or control business decisions.
The member retains full membership status and all governance rights. The LLC continues operating normally under its operating agreement and Texas law. Other members are unaffected by the charging order.
What the Creditor Cannot Do
A charging order does not grant the creditor:
- Voting or management rights
- Access to LLC information or records
- The ability to force distributions
- The power to dissolve the LLC
- Membership status
This limitation makes charging orders an unattractive remedy for creditors, often encouraging settlement negotiations instead.
Key Limitations
Standard, Not Enhanced Protection
Texas offers standard charging order protection. Unlike some states, Texas does not make charging orders the exclusive remedy or provide enhanced protections that restrict creditor access further. The statute establishes a baseline floor.
Veil Piercing Risk
Charging order protection does not prevent courts from piercing the LLC veil if the entity lacks legitimate business purpose or is undercapitalized. Proper formation, capitalization, and compliance reduce this risk.
Inside vs. Outside Creditors
Charging order protection applies only to outside creditors (those with claims against the member personally). Creditors of the LLC itself have direct remedies against company assets.
Community Property Consideration
Texas is a community property state. Spouses may have claims to LLC interests acquired during marriage, which can complicate charging order outcomes in divorce or creditor situations.
Next Steps
- Draft a clear operating agreement addressing distributions and member duties to establish how charging orders function in your LLC
- Consult a Texas business attorney if facing creditor claims or concerned about personal liability
- Maintain proper capitalization and compliance to avoid veil-piercing claims that could override charging order protection
This is general information, not legal advice.