LLC= Taxation As Partnership + Limited Liability

Wyoming LLC & The Charging Order Protection

Wyoming LLC

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Wyoming LLC & The Charging Order Protection

LLC Taxation As Partnership

Partnerships are “pass-through” entities for tax purposes. This means that partnership income, deductions and other items passes through the partnership directly to the partners. Accordingly, each partner takes into account his or her share of partnership income, deductions and other items in determining the partner’s individual tax liability.

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Partnerships Have Partners.

Limited liability companies (LLC) have members. The ownership in the LLC is called the “ member interest.”

If a judgment is awarded against the LLC itself, it may be levied, and LLC’s property seized or sold in payment. If, however, a judgment is awarded against a member, to the extent that the operating agreement so states, distribution usually cannot be compelled to satisfy a member’s judgment debt. Creditors have to satisfy themselves with a “charging order.” This gives them the rights to any distributions made by the LLC to that particular member, but little else.

  • LLC’s are taxed as a corporation or as a partnership. Taxation as a partnership is the default.
Limited Liability

The Limited Liability Of A Corporation

When a hostile creditor sues the corporation, normally, it can only take the assets of the corporation. The stockholders are generally not liable for the debts, liabilities and acts of the corporation. This is called “limited liability.” This is very different from a partnership, where all partners are liable jointly and severally for everything chargeable to the partnership.

Corporations Have Stockholders.

  • Limited liability companies have members.

The LLC has the limited liability of a corporation.

Hybrid Entity

The Limited Liability Company (LLC) Is A Hybrid Entity

The LLC offers the pass-through taxation of a partnership and the limited liability of a corporation.

Corporation

A Corporation can have one or more Directors and Officers. The hostile creditor can take your stock, if he can prove that you own it.

Limited Liability Company

An LLC can have one or more Managers. The hostile creditor can ONLY go after a member’s economic interest in the LLC through the courts. This is called obtaining a “charging order.”

Charging Order

Once the charging order is obtained, the hostile creditor is now first line for any future distributions that are usually paid out to the member(s).

Wyoming Statute 17‑15‑145. Rights of creditor.

“…The charging order is the exclusive remedy by which a judgment creditor of the member or transferee may satisfy a judgment against the member’s interest in a limited liability company.”

  • Please see your tax advisor or attorney.