External Claim


DEFINITION of 'External Claim'

A claim against an individual that does not arise out of any relationship he or she may have to a business in which the individual has an ownership interest. Depending on how the business is owned, the creditor may be able to pursue the business to satisfy the external claim against the individual business owner/debtor.

BREAKING DOWN 'External Claim'

Simply setting up a business in an entity, such as a corporation, may not protect it from the owner's personal creditors. External claims against a business owner may be satisfied by his or her interest in the business entity.

However, some entities, such as limited partnerships and limited liability companies, provide their partners/members with protection from claims arising outside of the entity. Many states only give outside creditors the right to attach or garnish distributions made from the entity to the debtor and do not allow the creditor to attach or sell the debtor's interest in the entity. Thus, management control of the entity remains intact and the debtor's interest in the entity is protected.

  1. Internal Claim

    A claim by a creditor that is restricted to the business's assets ...
  2. Lien

    The legal right of a creditor to sell the collateral property ...
  3. Corporation

    A legal entity that is separate and distinct from its owners. ...
  4. Limited Partnership - LP

    Two or more partners united to conduct a business jointly, and ...
  5. Limited Liability Company - LLC

    A corporate structure whereby the members of the company cannot ...
  6. Debtor

    A company or individual who owes money. If the debt is in the ...
Related Articles
  1. Home & Auto

    Cover Your Company With Liability Insurance

    Every business is susceptible to legal action. Find out how to protect yours.
  2. Retirement

    Discover Master Limited Partnerships

    These unique investments provide significant tax advantages.
  3. Retirement

    Bankruptcy Protection For Your Accounts

    Will the plan assets you've worked hard for be safe if you experience a personal financial crisis?
  4. Options & Futures

    Asset Protection For The Business Owner

    Could incorporating your business help protect it? Find out here.
  5. Options & Futures

    Changing The Face Of Bankruptcy

    A 2005 law attempts to unmask fraudulent debtors and still save those who are struggling. Will it affect you?
  6. Stock Analysis

    How To Start Your Own Private Equity Fund

    Here's a how-to guide on starting on starting a private equity firm.
  7. Investing Basics

    What Does In Specie Mean?

    In specie describes the distribution of an asset in its physical form instead of cash.
  8. Economics

    Calculating Cross Elasticity of Demand

    Cross elasticity of demand measures the quantity demanded of one good in response to a change in price of another.
  9. Fundamental Analysis

    Emerging Markets: Analyzing Colombia's GDP

    With a backdrop of armed rebels and drug cartels, the journey for the Colombian economy has been anything but easy.
  10. Fundamental Analysis

    Emerging Markets: Analyzing Chile's GDP

    Chile has become one of the great economic success stories of Latin America.
  1. How are joint ventures regulated in the United States?

    Joint ventures are a very specific type of business arrangement. They can be organized in several different legal structures, ... Read Full Answer >>
  2. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  3. Can I buy insurance to reduce unlimited liability in a partnership?

    Partnership insurance is actually quite common. Most of the time, partners buy insurance to safeguard against the possibility ... Read Full Answer >>
  4. What are the benefits for a company investing in a greenfield investment?

    Advantages of greenfield investments include increased control, the ability to form marketing partnerships and the avoidance ... Read Full Answer >>
  5. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  6. What is a family Limited Liability Company (LLC)?

    A family limited liability company (LLC) is formed by family members to conduct business in a state that permits such form ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!