Limited Liability Companies

Florida limited liability companies (LLC) are a popular tool in business planning. Many lawyers use the LLC as an alternative to Subchapter S corporations as the preferred legal entity for new businesses. Asset protection attorneys also use the LLC as a legal tool for domestic asset protection planning. Membership interests in a limited liability company are not exempt from execution or attachment by judgment creditors, but Florida law gives creditors limited remedies against a debtor’s LLC interest. A judgment creditor cannot attach an LLC member’s interest. A judgment creditor cannot seize assets owned by the LLC to satisfy a judgment against any one of the LLC’s owners. In a properly drafted LLC agreement, the creditor has no rights to inspect the books and records of the LLC.

Under Florida Statutes, a creditor’s remedy is limited to what is known as a “charging lien” against the LLC’s cash distributions. In the event the LLC manager chooses to make no distributions, the member’s creditor gets nothing. There is an IRS revenue ruling that held that in the event an LLC has taxable income allocated to a debtor/member, but where the LLC makes no distributions which are attachable by a charging lien, the member’s creditor is responsible for his income tax liability to a member even though the creditor receives no distributions by virtue of his charging lien. A Florida creditor's limited rights under a charging lien, together with this income tax liability, makes creditors reluctant to attack a member’s interest in a limited liability company and makes the Florida LLC an effective asset protection planning tool.

A limited liability company agreement with effective asset protection features is a complicated legal document which should be drafted by a Florida lawyer experienced in Florida asset protection law.

NEVIS Limited Liability Companies

Establishing an LLC entity in an offshore jurisdiction gives another layer of asset protection. The Island of Nevis, in particular, has enacted favorable LLC laws. Most important, Nevis, like Florida, permits a single-member limited liability company, and Nevis law also establishes a charging lien as a creditor’s exclusive remedy to attack a debtor’s LLC ownership interest. A transfer of assets by a U.S. citizen to an offshore single-member LLC does not have any adverse tax consequences otherwise associated with transfer of assets to other offshore entities. To attack a Nevis LLC interest, the creditor has to apply in a Nevis court for issuance of the charging lien. It is unclear whether a Nevis court would even recognize a Florida judgment giving rise to a creditor’s request for a charging order.

Under Nevis law, the manager of the LLC does not have to be a Nevis resident or a Nevis business organization. A Nevis LLC’s manager may be the debtor/member himself or any other individual located either in the United States or a different foreign jurisdiction. Such arrangements permit the debtor to have substantial control over the Nevis LLC and to physically maintain assets anywhere in the world.

An optimal offshore asset protection plan combines a Nevis LLC with an offshore asset protection trust. The debtor typically initially transfers assets to a Nevis LLC and then has the LLC membership interest issued to a separate offshore trust which has been established in Nevis or some other favorable jurisdiction. People seeking optimal asset protection should strongly consider ownership of U.S. assets through a Nevis LLC whose membership interest, in turn, is owned by an offshore asset protection trust.