If you are interested in learning about charging orders and how they can impact your partnership holdings, it is good to understand a bit about the history of them. This information will help you understand the framework in which charging orders were originally constructed as well as the reasoning behind amendments in various parts of the world since then. For those who have investments with others or have a single member LLC, it is always good to understand the way the law works.
Prior to the advent of charging orders, the process of collecting debt from people had some problems. For instance, if a debtor did not have the ability to pay a creditor, the courts could provide a writ of execution in favor of the creditor. When the debtor was a member of a partnership, this legal document gave the creditor the right to take assets from the place of business. Partnership assets could be removed, even if the things were not direct belongings of the creditor.
This created a lot of problems for businesses when one partner was not able to handle their personal finances. With all of the business assets seized in most cases, this left every one of the partners without the ability to work and provide for their families. If those folks lacked the financial ability to handle their business matters after that point, it could lead to financial ruin.
Plus, having the sheriff come to your business and shut it down looks really bad in front of the public. Perception is a big part of business operations, and some of these folks couldn’t recover even after freeing themselves from the financial disasters of just one of the partners. This was an awkward way to run the judicial system when it came to creditors recouping their lost funds from debtors.
At this point in time, they realized that it was necessary to start legally separating the assets of individuals from the partnerships themselves. This was the beginning of folks being able to create business partnerships that were separate entities. Of course, there have been additional changes that have made that happen.
At first, the applications were only to partnerships. However, they are now to include general and limited partners as well as LLC members. This helps to provide protection for the financial concerns of everyone involved.
It is important to realize that the exact history of charging orders will depend on which country you are investigating. Because each one is different in legal matters, you should always check the law where you plan to run a business to find out which specific rules apply in your case. This will help ensure that you are always within the legal requirements when it comes to your money.
As you can see, the primary reason for charging orders is to help protect innocent partners from loss due to one partner having an inability to pay personal creditors that don’t involve the business.