External Claim

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Internal Claim

    A claim by a creditor that is restricted to the business's assets ...
  2. Writ Of Seizure And Sale

    An order issued by a court that allows the petitioner (usually ...
  3. Corporation

    A legal entity that is separate and distinct from its owners. ...
  4. Debtor

    A company or individual who owes money. If the debt is in the ...
  5. Lien

    The legal right of a creditor to sell the collateral property ...
  6. Limited Partnership - LP

    Two or more partners united to conduct a business jointly, and ...
Related Articles
  1. Cover Your Company With Liability Insurance
    Home & Auto

    Cover Your Company With Liability Insurance

  2. Discover Master Limited Partnerships
    Retirement

    Discover Master Limited Partnerships

  3. Bankruptcy Protection For Your Accounts
    Retirement

    Bankruptcy Protection For Your Accounts

  4. Changing The Face Of Bankruptcy
    Options & Futures

    Changing The Face Of Bankruptcy

comments powered by Disqus
Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  3. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  4. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
Trading Center