If Santa Claus were sued in his individual capacity and a greedy creditor , in an attempt to collect more money , obtained a judgement against his LLC business , his fellow reindeer business partners would be protected from this leech which waited outside to abscond with the profits of their company .
But with the advent of the ‘ singlemember ’ LLC , the question quickly arose , “ What happens when there are no other member interests to protect ?”
The only three States affording charging order protection as the “ exclusive remedy ” to a singlemember Limited Liability Company are Nevada , Wyoming and Delaware .
Ashley Albright Case
" A charging order protects the autonomy of the original members and their ability to manage their own enterprise . In a singlemember entity , there are no nondebtor members to protect . The charging order limitation serves no purpose in a single member limited liability company , because there are no other parties ' interests affected .”
– Case No . 0111367 , 291 B . R . 538 ( Bankr . D Colo . 2003 )
The only three States affording charging order protection as the “ exclusive remedy ” to a singlemember Limited Liability Company are Nevada , Wyoming and Delaware .
So what happens if a person gets a “ charging order ” against your company in one of these favorable jurisdictions ?
The Judgment Creditor has :
NO control or ability to participate in the management of the entity ;
NO say as to when , or in what amount , distributions can be made ; NO authority to force distributions ; NO managerial rights ; NO ability to exercise any measure of control over the entity ; and
THE CREDITOR MUST PAY TAXES ON MONEY THEY CANNOT COLLECT !
Under the Internal Revenue Service Ruling 77137 , it states :
“ Held , even though the general partners did not give their consent to the assignment , since B ( the assignee ) acquired substantially all of the dominion and control over the limited partnership interest , for Federal income tax purposes B is treated as a substituted limited partner . Therefore , B , must report the distributive share of partnership items of income , gain , loss , deduction , and credit attributable to the assigned interest on B ’ s Federal income tax return in the same manner and in the same amounts that would be required if B was a substituted limited partner .”
The charging order limitation serves no purpose in a single member limited liability company , because there are no other parties ' interests affected .”
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