As more people make and grow their wealth, many begin to open an LLC. This can be a great asset protection tool if you use it correctly.
There are many factors that could influence where and how you make your LLC. In order to understand how to use your LLC, a basic understanding of business entities is required.
An LLC is a Limited Liability Company, which is a type of business entity. These entities are created for the purpose of being able to operate a business outside of your personal name, and therefore not commingling your personal and business assets. This type of entity gets its protection mostly from what is called a Charging Order. Charging Order is a remedy that a creditor has when a judgment has been rendered against your LLC. This means that your LLC was sued, it went to trial and the judge or jury found your LLC responsible. Now it’s time to pay up.
When it comes time to pay the judgment, there are many different ways a judgment could be satisfied and depending on how you own your business or asset will determine which methods can be used. If you own stocks in a corporation, one way a Judgment can be satisfied is by attaching the judgment to your shares. This would allow your creditor to look at the books and records, and if you own a majority of the company shares they could take over the control of your company. This is where the advantage of an LLC comes into play. With an LLC, a creditor is limited to what the Charging Order says. This means that a creditor is limited to the ability to take distributions. They can step into your shoes in the event a distribution is made, but they cannot take control of your ownership interest like a corporation.
Now that you understand where the benefit of an LLC stems from, its important to make sure that your LLC is afforded Charging Order as an exclusive remedy. There are many factors that go into making sure the Charging Order is the exclusive remedy – jurisdiction and membership are the two most important considerations. Is your LLC the best jurisdiction for your purpose? And if so, does this jurisdiction afford your LLC Charging Order as the exclusive remedy? Some jurisdictions state different protection for single-member LLCs vs. Multi-member LLCs, what does your jurisdiction say? All of these questions are factors to consider when creating your Asset Protection Plan.
Check out our website for more information on jurisdiction and be sure to reach out to book your Preliminary Consultation so we can ensure that your business and personal assets are protected.
The Presser Law Firm P.A. 6830 N. Federal Highway, Boca Raton FL 33487 (561) 953-1050 or e-mail firstname.lastname@example.org