A properly created company identifies as a separate legal entity with its Federal tax ID number. Starting this process offers many advantages for asset protection. Limited liability companies safeguard assets in two ways.
The first is safeguarding personal assets from corporate creditors. We call this the Corporate Veil. The second is safeguarding company assets from personal debt. Most states offer minimal or no protection in this aspect, thus risking your company. Wyoming LLCs do offer this second form, known as charging order protection.
If you own a Limited Liability Company (LLC) in Wyoming, this article will explain the steps you can take to protect your business assets from risks and liabilities. Let’s get started.
Protecting your Business Assets With a Wyoming LLC
Maintain your Corporate Veil
The LLC is a legal entity or a person separate from its members, managers, executives, and staff. Doing business in the LLC entity structure has one benefit: it helps to avoid LLC duties becoming those of its limited members, managers, executives, and staff. The separate existence of the LLC must be acknowledged and appreciated if we are to reach this aim.
To maintain its legal person status, the LLC should carry out any business activity under its name. The people should run the businesses engaged in their business capacity, as members and not in their individual capacity.
Receipts and disbursements should go through the proper entities. For instance, you should deposit the rent into the LLC’s account for rent the LLC receives from a property owned by the company. You should conduct business transactions only using business accounts, not personal ones.
Property Transferred to LLC
Understanding LLC property as that of the LLC and not as that of any individual member, manager, or officer is absolutely vital. The LLC is more than just a separate pocketbook for its members. It is a separate, legally recognized entity. The managers, members, and officers of a Limited Liability Company failing to understand that their LLC’s cash or other assets are not theirs could lead to major issues with the IRS and invalidation of the LLC’s asset protection qualities.
Any assets moved to the LLC become LLC property and must be handled accordingly. Obtained under the LLC should be insurance policies for property coverage, liability coverage, and fidelity bonds. If liability coverage applies to the LLC and the people, you should consider the individuals extra insured.
Protection from charging order
An LLC can shield assets from personal litigation creditors. When a personal creditor files a judgment against a member, they usually cannot seize any LLC assets. Usually, creditors of a particular member only have limited access to distributions from the LLC should any arise. The rights would not cover any ability to run the business, demand any distributions from it, or vote the LLC interest. The LLC law offers a creditor only one method of collecting a judgment, known as a “charging order.”
Although there is no way the creditor could impose a distribution, a charging order lets the creditor grab LLC distributions actually made. The creditor would have to wait until the debtor-member received a payout.
Assets which are not to be transferred to the LLC
Given the financial benefits afforded to homestead residents—the homestead exemption for property taxes—a homestead should be an exemption to the LLC. The LLC should receive the fair market rent if you transfer the homestead to the company. Many states also have homestead exemptions, which guard all or part of a residential dwelling against creditor claims. State law will determine if these exemptions are rather little or significant.
The LLC should not hold non-business personal items, such as furniture, jewelry, and collectibles. Most customers would rather keep their items, and they should keep them out of the LLC to prevent having to rent them from the LLC.
Further, personal-use cars and other motor vehicles should be excluded from LLCs. Should a car accident occur, a motor vehicle might create great personal liabilities for the owner. Our clients save the LLC itself from facing liabilities that could exist for owners of motor vehicles by keeping automobiles out of an LLC and avoiding renting cars from the LLC.
As these items must be personally owned for specific tax reasons, annuities, IRAs, and other qualifying retirement plan monies should be retained outside the LLC. Transferring these assets to an LLC would cause negative immediate income taxes. Still, there are usually ways to include those assets in LLC planning.
Transferring particular assets to the LLC
LLC should have investment assets. Among these assets are but not limited ones:
- Real estate investments;
- Stocks, bonds, mutual funds, money market accounts, CD;
- Business interests, including shares of a closely held corporation (except for an S corporation), partnership interests, and LLC membership interests (be sure to review LLC, partnership, shareholder, and other agreements that might limit the transferring capacity of closely held business interests);
- Notes receivable, mortgages, and trust deeds assigned as note security and
- Irrevocable Life Insurance Trusts or Gift Trusts
LLC Assets’ Value Appraisals
At the time of contribution to the LLC, one must ascertain the worth of all assets moved to the Wyoming LLC. Notes receivable, real estate, or business interests in closely held corporations or LLCs are among assets without an explicit value that could need to be evaluated by a certified appraiser.
LLC valuation
Apart from evaluating the underlying assets added to the LLC, a certified business appraiser or evaluator has to value the Wyoming LLC units in the case of owner death and the case of gift or sale. The valuation should justify any valuation discounts claimed about gifting, sometimes known as the business evaluation, which supports the positions made on Federal Gift Tax Returns.
Should a challenge by tax authorities or in the course of litigation arise, a thorough assessment is fitting. Use a trained, competent appraiser or evaluator who will generate a careful, thorough, and understandable assessment or valuation report. In the end, an inexpensive assessment could cost you significantly more than an appraisal report generated by a qualified corporate appraiser. It is important to budget for the knowledge required for an accurate assessment.
Leverage Wyoming LLC Laws for Asset Protection
A Wyoming LLC lets company owners successfully overcome the complexity of asset protection by helping to guard business assets. Its independent legal structure creates a solid basis for expansion by shielding personal assets from business liabilities and personal creditors.
Carefully designed plans from a Wyoming LLC offer a strategic advantage. It empowers business owners to secure their wealth and focus on long-term success without fear of personal or business liabilities intersecting.
