Charging Order does not Impact upon Management Rights

Entry of a Charging Order Does Not Divest a

Member of the Right to Participate in Management

A recent decision of the Nevada Supreme Court reiterated the rule that the entry of a charging order against an LLC member does not deprive the member of the right to participate in the LLC’s management.  Waddell v. H2O, Inc., 128 Nev. Adv. Op. No. 9 (Nev. March 1, 2012).

After a somewhat meandering review of LLCs generally and charging orders in particular, including the limited rights afforded a judgment-creditor holding a charging order, the court reversed the decision of the trial court to the effect that the charging order divested the judgment-debtor of the right to participate in the LLC’s management.

That was not, however, the end of the story.  Although the language of the subject operating agreement was not reviewed, apparently it provided a call right upon the entry of a charging order and dissociation upon the exercise of that call.

Irrespective of the discussion of charging orders, the Court made a noteworthy point as to participation in LLCs – “those who wish to enter into an LLC should be vastly familiar with [the LLC act] in order to properly protect their interests.”