New York’s Limited Liability Company Law (LLCL) § 601 establishes a fundamental principle about ownership in an LLC:
A membership interest in an LLC is personal property.
A member has no direct interest in the LLC’s specific property.
This distinction is critical for several reasons. Unlike partnerships or sole proprietorships, where owners may have a direct claim to business assets, an LLC’s property belongs to the entity itself—not to individual members.
Full Text of LLCL § 601
§ 601. Nature of membership interest
A membership interest in the limited liability company is personal property. A member has no interest in specific property of the limited liability company.
Implications of LLCL § 601
1. Creditors’ Rights
If a member has personal debts, creditors may be able to place a lien on the member’s interest in the LLC but cannot seize the LLC’s property directly.
2. Estate Planning & Transfers
Since a membership interest is personal property, it can be transferred, inherited, or assigned. However, operating agreements often impose restrictions to control who can become a member.
3. Asset Protection
LLC property is shielded from personal liabilities of its members, reinforcing the liability protection that makes LLCs an attractive business structure.
Conclusion
Understanding LLCL § 601 is crucial for business owners, estate planners, and creditors alike, as it defines the boundaries of ownership and control within a New York LLC.
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