Can a Creditor Place a Lien on an LLC?

Creditors use liens as a way of securing or enforcing a debt. The lien is placed against the property of a debtor, which can be done with or without the debtor's consent, depending on the circumstances. If the debtor does not pay the debt secured by the lien, the creditor may be able to force payment by using court process. Property owned by a limited liability company, or LLC, can have a lien placed against it by a creditor.

LLC Property Rights

LLCs are created under state law. Although the LLC law in each state varies to some extent, in all states an LLC is given the power to own and manage property in the same manner as an individual person. As an example, the Arizona Limited Liability Company Act specifically states that an LLC has the power to "acquire, own, hold, improve, use and otherwise deal in and with real property or personal property" and can "mortgage, pledge, [or] create a security interest in" its property. Under Delaware law, an LLC's powers are broadly defined as the right to “carry on any lawful business, purpose or activity, whether or not for profit.”

Voluntary Liens

It is common practice for liens to be placed against property voluntarily, especially when a loan is needed to purchase the property. For example, a real estate purchase made with a bank loan will require a voluntary lien recorded against the real estate in the form of a mortgage or deed of trust. This requirement is the same regardless of whether the purchaser is an individual or a legal entity such as an LLC. An LLC that needs a line of credit for its business operations must give the lender a lien -- often referred to as a "security interest" -- in the LLC's equipment and inventory, as well its accounts receivable. Any property owned by an LLC can be used as collateral for a debt so long as the LLC voluntarily agrees to place a lien against the property.

Judgment Liens

A primary factor for business owners to create an LLC is to limit their personal liability for debts incurred by the business. This factor assumes that the LLC is liable for the business debts and can be sued just like any other debtor -- which it can be. If an LLC is sued and has a court judgment made against it, the judgment creditor is entitled to enforce the judgment as provided by law. Among the legal remedies available to an LLC's creditor for enforcing the judgment is the right to place an involuntary lien against the LLC's property.

Other Involuntary Liens

By virtue of owning property and engaging in business, an LLC may also be subject to other types of involuntary liens in the event of a disputed or unpaid debt. For example, taxing authorities generally have the right to attach a lien to property when taxes become delinquent. Failure to timely pay property taxes can result in a lien against real estate owned by the LLC. Failure to pay income taxes can result in an IRS lien against the LLC's property and accounts receivable.

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