New form of LLC Law
Wyoming was the first state to have LLC’s, over 26 years ago, and that law has recently been updated.
“The state of Wyoming now has the best LLC asset protection law in the nation.”
- A single member LLC is protected by charging order
- Better asset protection law than any other state
- Wyoming law does not allow any room for interpretation
- Domestic Asset Protection Trust can be linked to the LLC
- Estate Planning advantages
- Wyoming LLC is confidential and private
- Zero Wyoming state tax for an LLC
- Lower cost
Sole member and multi-member LLC’s protected
Wyoming has pioneered a new form of LLC that precludes creditors from any legal or equitable remedy other than a charging order against the LLC interest, even as to Single Member LLC’s. The charging order is the “exclusive remedy.” Other remedies, including foreclosure and a “court order for directions, accounts and inquiries” are not available and may not be ordered by a court. This new LLC protection law means that you do not have to have 2 or more members in the LLC to get the charging order protection!
Wyoming’s law is better than other states. California allows a court to charge the LLC interest; appoint a receiver; order foreclosure; and make all other orders, directions, accounts and inquiries the judgment debtor might have made or the circumstances require. Nevada declares charging order to be the exclusive remedy, but gives the creditor rights of an assignee. Delaware provides for charging order as exclusive remedy, but then also provides that it constitutes a lien on the debtor’s LLC interest. Wyoming does not even allow a lien!
Wyoming Law does not allow any room for interpretation
Here is the complete new LLC law in regards to the charging order protection. You will note that it is short and sweet. It does not leave any room for legal interpretation:
“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. A charging order 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.”
“This section provides the exclusive remedy by which a person seeking to enforce a judgment against a judgment debtor, including any judgment debtor who may be the sole member, dissociated member or transferee, may, in the capacity of the judgment creditor, satisfy the judgment from the judgment debtor’s transferable interest or from the assets of the limited liability company. Other remedies, including foreclosure on the judgment debtor’s limited liability interest and a court order for directions, accounts and inquiries that the judgment debtor might have made are not available to the judgment creditor attempting to satisfy a judgment out of the judgment debtor’s interest in the limited liability company and may not be ordered by the court.“
Domestic Asset Protection Trust
And to avoid having income frozen inside the LLC as a result of a charging order, the Wyoming Close LLC can be owned by a Domestic Asset Protection Trust (DAPT), under which a trustee may make discretionary distributions to the debtor’s family and perhaps even directly to the debtor. Twelve states now offer various forms of DAPT, including Wyoming.
We have a trust package that can be changed to fit your needs. You can read more about them here.
This type of planning is best done before it is needed, and due diligence is required to avoid running afoul of laws against fraudulent conveyance. However, significant potential benefit may be realized in terms of leverage against creditors, if ever needed. There is the chance a home state court would apply that state’s LLC law rather than Wyoming law, even with minimal home state contacts, but asset protection planning can work for solvent but prudent families and businesses who want to put up additional barriers, legally and in good faith, between their assets and potential future creditors. These additional barriers–set up in good faith, well in advance–frequently result in a better settlement.
In addition to the asset protection potential, there is estate planning benefit in terms of valuation discounts (for lack of marketability, lack of control, minority interest, and fractionalized interest). While the IRS will allow appraisers to discount value for restrictions in the operating agreement as well as restrictions under state law, affecting member management, withdrawal, transferability and dissolution, the Internal Revenue Code requires these to be disregarded in valuation if they are more restrictive than the default rule under state law concerning both withdrawal and dissolution.
For withdrawal, Wyoming LLC law requires unanimous consent of all members. By comparison, California and Arizona allow withdrawal at any time. Nevada allows withdrawal upon dissolution, and member then has right to fair market value of interest. Wyoming has more restrictive default rules concerning return of contributions: all members must consent; the member can only receive cash; the member is even precluded from dissolving the LLC for failure to return the member’s contribution to capital.
For dissolution, Wyoming requires unanimous written consent. Nevada also requires unanimous consent, but this may be by either written agreement or affirmative vote. New York requires majority vote, and Arizona requires something akin to a majority. Delaware requires two-thirds. California LLC’s are bereft of commitment, dissolving upon majority vote; action filed by any member or manager; or petition of at least three creditors.
Confidential Wyoming LLC
If you need privacy, keep in mind that Wyoming does not require the members or managers to be listed on the public record.
Tax implications for an LLC
As Wyoming has no income taxes, a Wyoming LLC is not taxed by the state. An LLC normally passes the taxes through to it’s owners and if those owners live in a state that taxes income, they would pay state taxes in that state.
Wyoming state fees are some of the lowest in the nation. Since Wyoming has had limited liability companies available longer than any other state, has the strongest laws protecting the members and managers of an LLC, we feel it is the obvious state of choice for establishing LLC corporations.
Keep in mind this is general information for educational purposes, do not rely on it as specific legal advice. Be sure to update your research and get competent legal and accounting advice.