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CREDITOR RIGHTS AND THE CHARGING ORDER PROTECTION

Why file a Wyoming LLC in New York?  What's the advantage of doing that rather than operate from a New York LLC?

NEW YORK LLC WYOMING LLC DOING BUSINESS IN NEW YORK
Creditor sues and wins a lawsuit against a member of the LLC in New York.  The lawsuit is not filed against the LLC itself. Same:  Creditor sues and wins a lawsuit against a member of the Wyoming LLC in New York.  The lawsuit is not filed against the LLC itself.
Creditor may find out that the debtor has an interest in New York LLC.  This usually happens through a public records search, or a debtor examination. Same:  Creditor may find out that the debtor has an interest in Wyoming LLC.  This usually happens through a public records search, or a debtor examination.

 

The creditor obtains a charging order against a member's interest in the New York LLC. Same:  The creditor obtains a charging order against a member's interest in the Wyoming LLC.

New York Consolidated Laws, Limited Liability Company Law - LLC 607. Rights of creditors of members

(a) On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the membership interest of the member with payment of the unsatisfied amount of the judgment with interest.  To the extent so charged, the judgment creditor has only the rights of an assignee of the membership interest.  This chapter does not deprive any member of the benefit of any exemption laws applicable to his or her membership interest.

There appears no prohibition of foreclosure of a members' LLC interest.

2015 Wyoming Code

(g) 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.

Ask your attorney to compare the Wyoming LLC statute to that of New York.

No foreclosure of member's LLC interest.

No court order for directions, accounts and inquiries are not available to the judgment creditor attempting to satisfy a judgment.

OPERATING AGREEMENT

Many operating agreements are written for ease of understandings and neglect how to protect the interests of the members.  

NY LLC's usually make the mistake of mandating an annual distribution to the members.  The judgment creditor only needs to obtain a charging order against the member's LLC, and wait for the Manager to make a distribution.  Then that distribution is paid out to the creditor. Our WY LLC doesn't mandate an annual distribution to the members.  In this way, a hostile creditor cannot wait for the distribution to take place by a certain time of year.  If the manager has the discretion to make the distribution, then the creditor waits indefinitely for funds intended to the member subject to charging order.  There are other devices we instituted in our aggressive operating agreement to look after the interests of the members.  Our operating agreement is hyper-aggressive and designed in-house, and included with every LLC we offer.
 

ADD ISSUE OF LOCALITY

There is a school of thought that since you filed the Wyoming LLC into New York, that you will be subject to NY's interpretation of the charging order.  The key to prevent this from happening is to keep the key assets away from NY.  How could this work?  Let's continue to compare the situation between a New York LLC and a Wyoming LLC filed to do business in NY, and how to maximize asset protection.

You have a property in a New York LLC.

The property's equity is of public record.  The owner of the property has produced a valuable litigation target.  Even if the bank has a first priority lien against the property, the remaining equity is available to a judgment creditor.  If a sale is forced, the funds are available to the creditor after the first lien is satisfied.

The available equity is found through an asset search.  Whether the property is owned by you or a New York LLC, the information remains available.

The available equity is found through an asset search.  Whether the property is owned by you or a New York LLC, the information remains available.

 

Same: You have a property in a New York LLC.

Same:  The property's equity is of public record.  The owner of the property has produced a valuable litigation target.  Even if the bank has a first priority lien against the property, the remaining equity is available to a judgment creditor.  If a sale is forced, the funds are available to the creditor after the first lien is satisfied.

Same:  The available equity is found through an asset search.  Whether the property is owned by you or a New York LLC, the information remains available.

Same:  The available equity is found through an asset search.  Whether the property is owned by you or a New York LLC, the information remains available.

 

The available equity is found through an asset search.  Whether the property is owned by you or a New York LLC, the information remains available. You have a real estate property in a New York LLC or New York corporation, or the property is in your name, and you would like to use a Wyoming LLC to protect it.

HOW TO PROTECT A FINANCIAL ASSET:

Keep the address of the financial account out of NY.  Open the account under the company name using our Wyoming address.  The bank or brokerage account may be in NY, but the company owns the account doing business from Wyoming.  If you hold these financial assets, there's no need to use a NY company or file the WY LLC into NY.

HOW TO PROTECT THE REAL ESTATE ASSET IN NY:

Your Wyoming LLC files a lien against the property.  This will wipe out the remaining equity.

You have a real estate property in a New York LLC or New York corporation, or the property is in your name, and you would like to use a Wyoming LLC to protect it.

Option #1:   You could quit claim the property to the Wyoming LLC.  If you're renting out the property, you may need to file it into NY in order to handle evictions and other matters in regard to tenants.  Ask your attorney how this places the real estate assets within reach of local NY law.

Option #2:  A first or second lien is filed against the property in NY.  This means any creditor looking for equity of the property as a target, will perceive no equity is available.  The friendly lien wipes out the equity in the eyes of the creditor.  The equity in the property is effectively monetized and transferred to the WY LLC. 

That lien is held in a Wyoming LLC with an address in Wyoming.  If the property is sold, the lienholders are paid in order of priority.  Usually, the bank is paid as first lien holder.  The WY LLC is then paid as the second lien holder.  This also means that the WY LLC serves as your finance company for the next acquisition.  If a creditor sizes up the LLC's assets, they will see the real estate, any first lien by the bank, and the second lien held by the WY LLC. 

Since the WY LLC will hold the lien to your property in NY, ask your attorney about LLC Law Section 611.

New York Consolidated Laws, Limited Liability Company Law - LLC 611. Business transactions of a member with the limited liability company

Except as may be provided in the operating agreement, a member may lend money to, borrow money from, act as a guarantor or surety for, provide collateral for the obligations of and transact other business with the limited liability company and, subject to other applicable law, has the same rights and obligations with respect thereto as a person who is not a member.

  If you have property in NY, how can you protect that property with an LLC?

1.  If the property is in your name, you can quick claim the property to the LLC.  You are simply capitalizing the LLC with the property.  You contribute property to the LLC in exchange for an interest in the LLC.  That property can be real estate, cash, or any other asset.

2.  You can also file a lien against your property.  Let's say you already own property in an NY LLC or a corporation in NY.  The LLC can file a lien against the property in exchange for an interest in the LLC.  To file a lien against your property, with the WY LLC as the lienholder, you should also file a promissory note.  Your attorney can help you with the promissory note and the recording of the lien.

New York Consolidated Laws, Limited Liability Company Law - LLC 501. Form of capital contributions

The contribution of a member to the capital of a limited liability company may be in cash, property or services rendered or a promissory note or other obligation to contribute cash or property or to render services, or any combination of the foregoing.

  What if I am lazy or too busy and don't want to go the route of a lien against my real estate assets.  What else can I do right now that is much easier and cheaper?

You can contribute a promissory note as capital to the WY LLC and this is acceptable in NY.  Since the debtor is in NY, and the promissory note is signed in NY, we need to make sure that the document is acceptable in NY.  Your attorney should draft the promissory note. 

If you sign the promissory note stating that you owe the Wyoming LLC in exchange for an interest in the same LLC, the Wyoming LLC can act as a creditor in NY.  And if you're hit with litigation, you can then choose to pay off the WY LLC when it's most convenience to you.  To satisfy your debt to the WY LLC, you can pay the WY LLC with cash, real estate, a lien against your property or any other asset.  You are creating a friendly creditor (Wyoming LLC) and paying off that creditor when it suits your interests.  But the debt to the WY LLC should ideally be created before litigation strikes.  If you, as the debtor, lives in NY, then ask your attorney how Section 502 applies to you by owing the Wyoming LLC. 

Ask your attorney about:

New York Consolidated Laws, Limited Liability Company Law - LLC 502. Liability for contributions

a) Except as provided in the operating agreement, a member is obligated to the limited liability company to perform any promise to contribute cash or property or to perform services that is otherwise enforceable in accordance with applicable law, even if he or she is unable to perform because of death, disability or any other reason.  Except as provided in the operating agreement, if a member does not make any required contribution of property or services, he or she is obligated at the option of the limited liability company to contribute cash equal to that portion of the value, as stated in the records of the limited liability company, if so stated, of the contribution that he or she has not made.  The foregoing option shall be in addition to, and not in lieu of, any other rights, including the right to specific performance, that the limited liability company may have against such member under the operating agreement or applicable law.

OUR ROLE

We file the Wyoming LLC and forward the mail from Wyoming directly to you.  We also provide a manager for the Wyoming LLC who doesn't reside in NY.  Our Contract Manager has served for many businesses since 2001 at a reasonable rate.  Please call 484.256.4563 for a consultation.  We work with you, report to you, and your attorney.  We are not attorneys.  We aim to highlight a few questions on what to ask your attorney during your consultation about whether these services are of benefit to you or your business plan.

Your attorney shouldn't serve as a corporate officer for your company.  That's our job to file the company and serve as a Manager, and serve according your direction or the direction of your attorney.  And our Contract Officer/Manager signs a document that he cannot do anything involving the company without your written directive.  Your directives also demonstrate that the company is yours.  We're not interested in being liable for your taxes.  Since the Wyoming LLC is taxed as a partnership, this is a pass-through entity, meaning that the taxes are paid to NY as reported on your 1040 and state tax returns.  There's no tax advantage to a WY LLC.

  • Who appears on the public record for the company?  We provide a Contract Manager that serves on the public record. 

  • We serve a registered agent.

  • We forward the mail from our address to you.

  • We exchange photo ID's to keep everyone accountable to one another.

  • We perform a background check of our clients to keep our client pool clean.

  • Who signs contracts and closing documents?  Our Contract Manager will do that for you as long as a personal guarantee is not required.  The Contract Manager can only do this upon your direction and under your control.  We put that in writing.

  • Who signs the tax return?  You do-- the client.

  • Who applies for the Employer Identification Number with a SSN?  You do-- the client.

  • Who is responsible for paying the taxes?  You do-- the client.

  • Who signs on the business account?  You do-- the client.

  • Who is in control?  You do-- the client.

  • Who signs as guarantor for the company's liabilities?  You do-- the client.

  • CALL 484.256.4563

 

COSTS:

New Wyoming LLC, $400 for set up.  Includes:

  • Filing of the articles of organization with the Wyoming Secretary of State
  • Aggressive operating agreement to protect the interests of the members.
  • Resolutions that work with the operating agreement. 
  • Filing fee with the Wyoming Secretary of State

Mail forwarding from Wyoming to your address.  $200 per year.

  • 12 mailings per year using our commercial business address in Cheyenne, Wyoming.

Contract Officer service. $500 per year.

  • A Contract Manager is provided who knows the operating agreement and the resolutions of the LLC.
  • The Contract Manager works for you.  A photo ID of the Contract Manager is provided to you.  The client provides a photo ID to the Contract Manager.  This is how we verify the directives of the client.
  • Your Contract Manager serves on the public record for the company.
  • Your Contract Manager is willing to sign documents that don't require a personal guarantee.
  • Your Contract Manager signs closing documents in the selling or acquisition of real estate.
  • Your Contract Manager will also sign the foreign qualification to do business in New York, or another state.
  • You, the client, apply for the Employer Identification Number (EIN) with your Social Security Number (SSN).
  • You, the client, prepare and sign the tax return.  We recommend using Turbotax.
  • You, the client, open and sign on the LLC bank account.  We help you open the account.

Please call 484.256.4563

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