I’ve been doing a lot of research in the last few weeks about obtaining business credit and estate planning. Here is a point that was not lost on me.
There are a lot of reasons why Montana, known as the Treasure State, will remain The Buried Treasure State with respect to business and economic development. The government of Montana has regulated industry out of business and out of the State. There are 8 oil wells active in MT while hundreds of sites are working across the border with 5000 to come on-line by the end of 2012 — drawing from the same pool of subterranean oil. From a legal perspective, here’s one glaring example of how Montana presents a hostile working environment for any business.
Montana State law authorizes the courts to force the foreclosure of a charging order by a creditor if the court determines that your LLC is stalling on making a distribution to a creditor. This is done by the appointment of a receivership as outlined in the MCA:
35-8-705. Rights of judgment creditor. (1) On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the distributional interest of the member with payment of the unsatisfied amount of judgment, with interest. To the extent charged, the judgment creditor has only the rights of an assignee of the distributional interest. This chapter does not deprive a member of the benefit of any exemption laws applicable to a distributional interest.
(2) The court may appoint a receiver of the share of the distributions due or to become due to a judgment debtor and make all other orders, directions, accounts, and inquiries that the judgment debtor may have made or that the circumstances require to give effect to the charging order.
(3) A charging order constitutes a lien on the judgment debtor’s distributional interest. The court may order a foreclosure of a lien on a distributional interest subject to the charging order at any time. A purchaser of the distributional interest at a foreclosure sale has the rights of a transferee.
(4) At any time before foreclosure, a distributional interest that is charged may be redeemed:
(a) by the judgment debtor;
(b) by one or more of the other members with property other than the company’s; or
(c) with the company’s property if permitted by the operating agreement.
(5) This section provides the exclusive remedy by which a judgment creditor of a member or a transferee may satisfy a judgment out of the judgment debtor’s distributional interest in a limited liability company.
Although rarely implemented, if the court did compel the foreclosure — the creditor would be able to destroy your business with the aid of the courts– no matter how much money was spent on planning and structure. The outcome would largely depend upon which judge was assigned to your case.
In most other states, the laws and the courts act to DEFEND your LLC from creditors!
It looks like Nevada, Delaware, and now Wyoming are still the best states to open shop — and that is unfortunate because they are not cheap — especially for a foreign entity. Having a registered agent there could be more spendy. If you have family or friends (responsible family or friends) in either of those states, consider having one of them be your registered agent. Also, Nevada has the Nevada Spendthrift Trust Act (STA) which contains the benefits of, but is superlative to, both the Alaska Trust Act and the Delaware Qualified Dispositions in Trust Act in every way. Strongly consider whether the added expense and technical difficulties of incorporating in Nevada are not outweighed by the benefits of having your business regulated by the laws of that State. WYOMING has all the benefits of Nevada, exempting the STA, is cheaper, does not anger the IRS by not informing them of asset in state (there will be none anyway), and is not considering corporate taxation.
While Nevada’s gaming industry is not the acme of moral merit, it has been the State of Nevada’s business-friendly legislation and wise/limited regulation which has turned THIS
into THIS — in the timespan of one human life
While a vast and colorful desert expanse may be your personal preference for a vacation of hiking, it does not equate with sustained quality of life for human beings.
Given the wrong turn of events, your Montana LLC will have offered a false sense of security with unbearable results.
Thank God that our Founding Fathers had the foresight to let each State act with a significant degree of sovereignty. This is the main reason why Federal laws and regulations are so dangerous and usually unneeded.