What Is a Charging Order? Definition and Use

Definition

Charging Order - A charging order is a court remedy limiting a member's personal creditor to intercepting that member's LLC distributions, without seizing company assets or taking over management.

If a Wyoming LLC member is personally sued and loses, the creditor can obtain a charging order under Wyo. Stat. § 17-29-503, which entitles them only to the distributions the LLC actually pays that member. The creditor cannot vote the interest, force a sale of company assets, or step into management. If the LLC makes no distribution, the creditor collects nothing, and in some situations may even owe tax on income allocated to the charged interest without receiving any cash. That imbalance is precisely what makes the charging order a weak remedy for the creditor and a strong shield for the member.

Owners often assume every LLC delivers this protection equally, and that is the costly error. Many states weaken or bypass the charging order for single-member LLCs, letting a creditor foreclose on the entire membership interest and effectively seize the company, since there are no other members to protect. Wyoming and Nevada statutes instead make the charging order the exclusive remedy even for single-member LLCs, closing the gap that leaves owners exposed in weaker states. The number of members, not just the state of formation, can determine whether the protection actually holds.

This is why Nevada, despite its $722 cost, draws asset-protection-focused founders, and why Wyoming is the default recommendation: it pairs strong single-member charging order protection with the lowest cost among the strong-protection states. New Mexico at $347 total and Delaware at $407 total also form anonymous LLCs, but Wyoming and Nevada offer the strongest exclusive-remedy charging order statutes. For a founder whose primary goal is shielding assets rather than minimizing annual cost, that statutory strength is the deciding factor.