A creditor wins a money judgment against someone who owns half of a Minnesota LLC. The natural next move is to take the LLC interest — levy on it, sell it at a sheriff’s sale, step into the ownership, and either run the company or force its liquidation.
Minnesota does not permit that. Chapter 322C hands the creditor a single tool, tells it that tool is the only one available against that asset, and then defines the asset so narrowly that the tool can come up empty.
The counterintuitive part is not that the creditor is limited. It is what the limitation runs against. Section 322C.0503, subdivision 7 is exclusive as to a particular asset, not as to the debtor — and the debtor’s protection is strongest exactly while the creditor does nothing, and starts to erode the moment the creditor succeeds.
What is a “transferable interest,” and why is it not your membership?
Chapter 322C splits what most people call an “LLC interest” into two things.
Minn. Stat. § 322C.0102, subd. 28 defines the first:
“Transferable interest” means the right, as originally associated with a person’s capacity as a member, to receive distributions from a limited liability company in accordance with the operating agreement, whether or not the person remains a member or continues to own any part of the right.
That is the whole of it: a right to receive distributions. Section 322C.0501 adds one sentence — “A transferable interest is personal property.”
The second thing is membership, and it is not property at all. A “member” is a person who has become one under § 322C.0401 and has not dissociated under § 322C.0602. § 322C.0102, subd. 15. After formation, a person becomes a member “as provided in the operating agreement,” through a merger-type transaction, or “with the consent of all the members.” § 322C.0401, subd. 4. Nothing in that list is available to a creditor.
So when a transfer happens, § 322C.0502, subd. 1 says it “is permissible,” “does not by itself cause a member’s dissociation or a dissolution,” and, subject to § 322C.0504, does not entitle the transferee to “participate in the management or conduct of the company’s activities” or — with a narrow exception — “have access to records or other information concerning the company’s activities.” The transferee gets distributions “in accordance with the transfer,” and in a dissolution is entitled to an account of the company’s transactions only from the date of dissolution. § 322C.0502, subds. 2, 3. And “transfer” is defined broadly enough to sweep in what a creditor would do anyway: it “includes an assignment, conveyance, deed, bill of sale, lease, mortgage, security interest, encumbrance, gift, and transfer by operation of law.” § 322C.0102, subd. 27.
The practical translation: the only piece of an LLC that can change hands involuntarily is the right to money the company decides to pay. Everything that makes ownership feel like control stays behind.
What does § 322C.0503 actually make exclusive?
Read the exclusivity provision one clause at a time. Minn. Stat. § 322C.0503, subd. 7:
This section provides the exclusive remedy by which a person seeking to enforce a judgment against a member or transferee may, in the capacity of judgment creditor, satisfy the judgment from the judgment debtor’s transferable interest.
Four limits are built into that sentence.
- It protects an asset, not a person. The exclusivity runs to satisfaction “from the judgment debtor’s transferable interest.” The debtor’s house, bank accounts, wages, vehicles, and every other asset remain subject to whatever collection remedies otherwise apply. A charging order is not a shield around the debtor. See our overview of Minnesota garnishment and judgment exemptions.
- It runs against creditors of the owner, not creditors of the company. The judgment must be “against a member or transferee.” A creditor of the LLC itself is outside the section entirely and proceeds against company assets in the ordinary way.
- It is capacity-limited. The words “in the capacity of judgment creditor” are doing work. The section says nothing about claims asserted in some other capacity or on some other theory — for example a transfer-avoidance claim under Minnesota’s Uniform Voidable Transactions Act, or a veil-piercing theory. Chapter 322C does not purport to resolve those, and a practitioner should not assume subdivision 7 disposes of them.
- Exemption law survives. “This chapter does not deprive any member or transferee of the benefit of any exemption laws applicable to the member’s or transferee’s transferable interest.” § 322C.0503, subd. 6.
What the creditor does get is set out in subdivision 1: on application by a judgment creditor of a member or transferee, “a court may enter a charging order against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment,” and that order “constitutes a lien on a judgment debtor’s transferable interest and requires the limited liability company to pay over to the person to which the charging order was issued any distribution that would otherwise be paid to the judgment debtor.”
The distribution rules confirm it. Distributions before dissolution must be in equal shares among members and dissociated members “except to the extent necessary to comply with any transfer effective under section 322C.0502 and any charging order in effect under section 322C.0503.” § 322C.0404, subd. 1.
Can the company simply stop distributing?
This is the question every debtor asks and every creditor underestimates.
Minn. Stat. § 322C.0404, subd. 2 is the whole problem in one sentence: “A person has a right to a distribution before the dissolution and winding up of a limited liability company only if the company decides to make an interim distribution.”
A charging order captures distributions. If there are none, it captures nothing. A lien on a stream that never flows is a lien on nothing, and the judgment sits there accruing interest while the debtor member continues to vote, manage, and — this is the part that startles creditors — draw a paycheck.
Because compensation is not a distribution. “Distribution” means “a transfer of money or other property from a limited liability company to another person on account of a transferable interest.” § 322C.0102, subd. 7. A payment for services rendered is not on account of a transferable interest, and § 322C.0405, subd. 7 makes the same point from the other direction, excluding from “distribution” any “amounts constituting reasonable compensation for present or past services or reasonable payments made in the ordinary course of business under a bona fide retirement plan or other benefits program.” Salary is not swept up by the charging order — though it remains subject to ordinary wage-garnishment law and exemptions, which is a different fight with different limits.
Now the counterweights, because the statute is not a one-way street.
Subdivision 2 lets the court, “[t]o the extent necessary to effectuate the collection of distributions pursuant to a charging order,” (1) “appoint a receiver of the distributions subject to the charging order, with the power to make all inquiries the judgment debtor might have made,” and (2) “make all other orders necessary to give effect to the charging order.”
Read the receiver’s power carefully, because it is derivative, not independent. The receiver may make the inquiries the judgment debtor might have made — no more. If the debtor is still a member, that is a real power: § 322C.0410 gives a member in a member-managed company the right on reasonable notice to inspect and copy records material to the member’s rights, and gives a member in a manager- or board-managed company an inspection right on a written demand describing the information and its purpose, with a ten-day response deadline. § 322C.0410, subds. 1, 2. But if the debtor has already been reduced to a bare transferee, the debtor’s own information rights are close to nothing — § 322C.0502, subd. 1(3)(ii) and subd. 3 — and so are the receiver’s.
The second clause, “all other orders necessary to give effect to the charging order,” has no stated boundary. A company that suspends distributions the month a charging order issues, while paying its owners in other ways, is inviting a court to test how far that clause reaches.
Can the creditor foreclose — and what does the buyer get?
Yes, on a showing. Section 322C.0503, subd. 3:
Upon a showing that distributions under a charging order will not pay the judgment debt within a reasonable time, the court may foreclose the lien and order the sale of the transferable interest. The purchaser at the foreclosure sale obtains only the transferable interest, does not thereby become a member, and is subject to section 322C.0502.
Notice that foreclosure does not convert the creditor into an owner. It converts a lien on distributions into ownership of the right to distributions — the same dry asset, now permanently. The purchaser still cannot vote, still cannot force a distribution, and still cannot inspect the books.
Notice also the last five words. The purchaser “is subject to section 322C.0502” — the whole section, including subdivision 6: “A transfer of a transferable interest in violation of a restriction on transfer contained in the operating agreement is ineffective as to a person having notice of the restriction at the time of transfer.” Chapter 322C does not spell out how a recorded transfer restriction interacts with a court-ordered foreclosure sale. The cross-reference is there, and it is worth briefing rather than assuming.
The trap on the debtor’s side: foreclosure removes a shield
Here is the provision most owners never see coming.
A member may be expelled by the unanimous consent of the other members if “there has been a transfer of all of the person’s transferable interest in the company,” but not where the transfer is “(A) a transfer for security purposes; or (B) a charging order in effect under section 322C.0503 which has not been foreclosed.” § 322C.0602(4)(ii).
So while the charging order sits unforeclosed, it is expressly carved out — the other members cannot use it as a ground to expel the debtor. Once it is foreclosed and the interest is sold, that carve-out no longer describes the situation, and the remaining members may act. And dissociation is not a small thing: on dissociation, “the person’s right to participate as a member in the management and conduct of the company’s activities terminates,” and the transferable interest is thereafter owned “solely as a transferee.” § 322C.0603, subd. 1(1), (3).
The debtor’s leverage is at its maximum while the creditor holds an unforeclosed charging order and at its minimum after a foreclosure sale. That is the opposite of the intuition on both sides of the table, and it is the reason a foreclosure motion is worth more to a creditor than the sale price suggests.
Does any of this work for a single-member LLC?
Chapter 322C does not say, and the honest answer is that the text gives you an argument and no resolution.
Section 322C.0503 speaks throughout of “a member or transferee.” It contains no exception for a company with one owner and no definitional carve-out. The chapter plainly contemplates single-member companies elsewhere — “operating agreement” means the agreement “of all the members of a limited liability company, including a sole member” (§ 322C.0102, subd. 17), and § 322C.0401, subd. 1 addresses a company that “is to have only one member upon formation.”
Two textual observations cut the other way. The redemption right in subdivision 5 belongs to “a limited liability company or one or more members whose transferable interests are not subject to the charging order” — a category that is empty in a one-owner company, leaving only the company itself. And the expulsion machinery in § 322C.0602(4) requires “the unanimous consent of the other members,” which likewise has no application.
The traditional justification for confining a creditor to a charging order is that the other owners should not be saddled with an involuntary co-owner. Where there are no other owners, that justification is absent. Chapter 322C does not address the point, and anyone planning around single-member asset protection in Minnesota should treat the question as open rather than answered.
Two exits the statute gives the other side
The debtor can pay and clear the lien. “At any time before foreclosure under subdivision 3, the member or transferee whose transferable interest is subject to a charging order under subdivision 1 may extinguish the charging order by satisfying the judgment and filing a certified copy of the satisfaction with the court that issued the charging order.” § 322C.0503, subd. 4.
The company or the other members can buy the creditor out — and keep the leverage. “At any time before foreclosure under subdivision 3, a limited liability company or one or more members whose transferable interests are not subject to the charging order may pay to the judgment creditor the full amount due under the judgment and thereby succeed to the rights of the judgment creditor, including the charging order.” § 322C.0503, subd. 5.
That second one is the most useful sentence in the section for a business with a partner in trouble. It does not extinguish the debt. It moves the debt inside the company, with the charging order attached, and puts the co-owners in the collecting seat. Both windows close at foreclosure.
What to do about it before there is a judgment
- Decide the distribution policy in writing, in advance. A policy adopted years before anyone’s judgment is a business decision. The same policy adopted the month a charging order lands looks like something else. Chapter 322C’s default is equal shares among members and dissociated members (§ 322C.0404, subd. 1), which is often not what the owners intend — see what the statute writes when your operating agreement does not.
- Write a real transfer restriction. Section 322C.0502, subd. 6 makes a restriction effective against a person with notice of it, and § 322C.0503, subd. 3 makes the foreclosure purchaser subject to § 322C.0502. A restriction that exists is worth briefing; one that does not exist is not.
- If you are the non-debtor owner, price out subdivision 5 early. Paying the judgment and succeeding to the charging order is usually cheaper than a foreclosure motion, a receiver, and a stranger holding your co-owner’s distribution rights permanently.
- If you are the creditor, build the “reasonable time” record from day one. Subdivision 3 turns on a showing about the pace of distributions. Distribution history, compensation history, and the company’s financial statements are the proof, and the receiver appointment under subdivision 2 is how you get them.
The design of chapter 322C is not that a member’s creditor goes unpaid. It is that the creditor is routed to the one component of ownership that can be transferred without dragging strangers into a closely held business — and then left to prove that component is worth something.
Madgett Law, LLC works both sides of this problem: enforcing judgments against owners of closely held Minnesota companies, and defending owners and their companies when a charging order, a receiver, or a foreclosure motion arrives. We also draft the operating agreement provisions that decide how the fight goes years before it starts. Send us a message or call 612-470-6529.
Sources: Minn. Stat. § 322C.0503 (charging order — subd. 1, application by a judgment creditor of a member or transferee, lien on the transferable interest, and the company’s obligation to pay over distributions; subd. 2, appointment of a receiver of the distributions with power to make all inquiries the judgment debtor might have made, and all other orders necessary; subd. 3, foreclosure upon a showing that distributions will not pay the judgment within a reasonable time, and the purchaser’s acquisition of only the transferable interest without becoming a member, subject to § 322C.0502; subd. 4, extinguishment by satisfying the judgment and filing a certified copy of the satisfaction; subd. 5, payment by the company or unaffected members and succession to the judgment creditor’s rights including the charging order; subd. 6, preservation of exemption laws; subd. 7, exclusive remedy for satisfying a judgment from the judgment debtor’s transferable interest in the capacity of judgment creditor); Minn. Stat. § 322C.0501 (a transferable interest is personal property); Minn. Stat. § 322C.0502 (subd. 1, transfer permissible, no dissociation or dissolution, no management participation or information access; subd. 2, transferee’s right to distributions; subd. 3, account only from the date of dissolution; subd. 6, transfer in violation of an operating-agreement restriction ineffective as to a person with notice); Minn. Stat. § 322C.0102 (subd. 7, definition of “distribution” as a transfer on account of a transferable interest; subd. 15, definition of “member”; subd. 17, “operating agreement” of all the members “including a sole member”; subd. 27, definition of “transfer,” including transfer by operation of law; subd. 28, definition of “transferable interest”); Minn. Stat. § 322C.0401 (subd. 1, single initial member; subd. 4, becoming a member after formation, including with the consent of all the members); Minn. Stat. § 322C.0404 (subd. 1, equal shares subject to transfers and charging orders in effect; subd. 2, no right to an interim distribution unless the company decides to make one); Minn. Stat. § 322C.0405, subd. 7 (reasonable compensation for services excluded from “distribution”); Minn. Stat. § 322C.0410, subds. 1 and 2 (information rights of members in member-managed and in manager- or board-managed companies); Minn. Stat. § 322C.0602(4)(ii) (expulsion by unanimous consent of the other members upon transfer of all of a person’s transferable interest, excluding a transfer for security purposes and an unforeclosed charging order); Minn. Stat. § 322C.0603, subd. 1 (effect of dissociation) (Minnesota Office of the Revisor of Statutes, 2025 Minnesota Statutes). This article is general legal information about Minnesota law, not legal advice, and reading it does not create an attorney–client relationship. Whether any of these provisions applies to a particular judgment, company, or interest depends on the specific facts and governing law. No outcome is promised or implied.