Limited Liability Company Interests as Collateral: Remedies on Default

Various business formations and financial transactions utilize alternative entity forms, such as limited liability companies (“LLC”), limited partnerships, master limited partnerships, limited liability partnerships, limited liability limited partnerships—you get the idea. In turn, commercial borrowers may offer—and lenders may request—interests in such entities as collateral. This blog post focuses on LLC membership interests (“LLC Interests”) as collateral.

Before accepting LLC Interests as collateral, lenders should consider what their options will be in the event of default. This blog post outlines, at a high level, options secured lenders may have pursuant to Article 9 of the Uniform Commercial Code (“UCC”). For purposes of this blog post, a perfected security interest is assumed. A discussion of issues in perfecting a security interest in LLC Interests can be found here.