Jurisdictional Decision Points & Charging Order Protection

Choosing the proper jurisdiction for your entity is paramount, especially in the ever-evolving legal landscape and increasing propensity toward litigation. There are countless considerations–from tax implications to differing regulatory regimes. However, one critical factor stands out above the rest: asset protection.

In the labyrinth of modern business, entrepreneurs and business owners must understand and utilize the available protections. While business owners generally revel in innovation, strategy, and growth, they must assess their vulnerabilities. This article will outline some key points to consider when selecting a jurisdiction and how they correlate with charging order protection.

The Dual Nature of Liability

The impetus behind business structures like the limited liability company and corporation is that they provide a significant advantage in shielding the business owner from liability. However, don’t immediately assume that these entities provide impenetrable protection. Vulnerabilities emerge when the business owner fails to structure the entity properly or fails to maintain the entity by completing the necessary and ongoing compliance activities. Corporations may require a certain amount of ongoing maintenance (depending on each state’s particular corporate statute); failing to fulfill those obligations has significant ramifications in the event of a lawsuit. Limited liability companies on the other hand, have an advantage: charging order protection. A charging order is a legal remedy of a judgment creditor which only allows that creditor to attach to the LLC – and does not allow that creditor to replace the member, force management-type decisions, nor force it to sell any assets owned by the LLC to satisfy the judgment. In the context of jurisdictional decision-making, it is critical to highlight that charging order protection varies by state.

States commonly used for asset protection, based upon the strength of their LLC statutes, are Delaware, Wyoming, Nevada, Alaska and Texas. What separates these from certain other states is that their respective LLC statutes have codified that a charging order is the sole legal remedy of a judgment creditor.

Thinking Outside of Delaware

Delaware has an established reputation for being the destination of choice for establishing businesses – from new ventures to Fortune 500 companies. The Delaware Court of Chancery is known for its business sophistication and for delivering swift and equitable resolutions rooted in established case law. Their understanding of complex corporate matters lays the foundation for consistent and predictable results.

While Delaware is usually considered the preeminent jurisdiction, there are other options. Our Firm develops strategies based on your Goals, Objectives and Risks – and choosing the proper jurisdiction for your entities is paramount. While we have formed and maintain many Delaware entities, we also form many Wyoming entities. Wyoming has become synonymous with asset protection, especially for LLCs. They were the first state to introduce the LLC back in 1977. Wyoming law allows for a relatively high level of confidentiality; they do require the public disclosure of beneficial owners. Wyoming also has lower filing fees, renewal fees and overall lower costs of doing business.

Protect Your Assets with Private Wealth Law Group, P.C.

We are dedicated to protecting your family, your business, and your assets. We accomplish that while striving to provide a high-touch, responsive, and a white glove experience for our clients. Your priorities are our priorities. Let Private Wealth Law Group, P.C., help you, your family and your business by contacting us to schedule your consultation.