Nevis LLC Offshore Company Asset Protection Guide
A Nevis LLC is a limited liability offshore company established in Nevis, W.I. for asset protection purposes. The Island of Nevis, W.I. enacted a favorable LLC Ordinance in 1995. The Nevis Assembly amended the Ordinance in 2015 to improve the asset protection benefits of a Nevis LLC. Nevis law establishes a charging lien as a creditor’s exclusive remedy to attack a debtor’s membership interest in a Nevis LLC including single-member LLCs. Charging liens in Nevis expire after three years and are not renewable.
Nevis courts do not recognize a charging order issued by a U.S. court. In theory, a U.S. creditor must apply for a separate charging order in Nevis. There is no instance to date where a U.S. creditor has obtained a charging lien through Nevis courts to enforce a U.S. judgment.
In 2015, one Florida court has held that a creditor can foreclose a debtor’s interest in a single member Nevis LLC through Florida court proceedings. The court held that LLC interests are intangible personal property that is subject to the jurisdiction of courts where the debtor resides and holds his LLC interest, in this case, Florida. The court said it could order foreclosure of the debtor’s membership interest in his single member LLC under Florida law because the membership interest is located in Florida. Other courts have reached the opposite result holding that charging liens must be filed in the LLC’s originating jurisdiction, such as Nevis.
A Florida debtor may get better asset protection by forming a certificated single member Nevis LLC; the certificated LLC issues physical certificates of membership which are deemed to be the sole evidence of LLC ownership. Certificated LLC interests are similar legally to bearer bonds or bearer stock certificates. The debtor can locate his Nevis LLC certificates in Nevis or another jurisdiction outside of Florida.
The debtor’s LLC interest would not be property located in Florida and therefore, not subject to Florida court authority. There are several Florida court decisions holding that a creditor must seek a charging order in the jurisdiction where the debtor’s personal property (LLC certificates) is located.
There are other parts of the 2015 amended Nevis LLC law that help protect against a creditors’ efforts to attack Nevis LLC interest in U.S. courts. The 2015 Nevis LLC law provides that if a member’s interest is subject to a charging lien the interest may be redeemed by other non-debtor members, or by the member himself, with other assets including exempt assets. The Nevis Ordinance states that distributions payable to the charged member may be offset by calls for additional capital contributions. The 2015 amendment requires a creditor to post a cost bond of before bringing any action to collect a judgment against a member of a Nevis LLC. The bond used to be subject to a maximum of $100,000 but in 2018 the ceiling has been eliminated and Nevis courts may impose a higher bond requirement.
The Nevis LLC law has barriers against creditor fraudulent transfer claims. Under the 2015 amendment, fraudulent transfer actions brought in Nevis are subject to a two year statute of limitations. The creditor must prove beyond a reasonable doubt that the debtor transferred assets to a Nevis LLC to hinder or delay creditors.
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 the transfer of assets to other offshore entities. Taxable income and losses are flowed through to the U.S. members. There are IRS informational reporting forms that owners of Nevis LLCs must file.
For example, a single member Nevis LLC must file IRS Form 8832 to be a “disregarded entity” although domestic LLCs are “disregarded for tax purposes by default.” People should consult their CPA regarding the filing tax reporting forms after setting up a Nevis LLC.
Limited Liabilities Companies for Asset Protection
A limited liability company (LLC) is a popular business planning tool. Most investors and business owners use the LLC (instead of Subchapter S corporations) as the preferred legal entity. Asset protection attorneys also use the LLC as a legal tool for domestic asset protection planning. Membership interests in an offshore company are not exempt from execution or attachment by judgment creditors, but Florida law gives creditors limited remedies against a debtor’s LLC interest.
Florida Statutes restrict a creditor’s collection remedy against a debtor’s LLC interest to what is known as a “charging lien” against the LLC’s cash distributions. Upon making a court motion a judgment creditor is entitled to a charging lien against the debtor’s financial interest in an LLC. If the LLC manager decides to distribute property or cash the members the LLC is required to give the judgment creditor the charged debtor’s share of distributions. In the event the LLC manager chooses to make no distributions, the member’s creditor gets nothing. This protection is not afforded to single member LLCs; in Florida, creditors may foreclose a debtor’s interest in a single-member LLC in lieu of a charging order.
Nevis LLC Formation and Management
A Nevis LLC can be formed without ever having to leave the U.S. Forming the LLC involves working with a U.S. entity–such as our law firm–who then acts as an interface between the U.S. person and an offshore company that serves as registered agent and the forming entity of the Nevis LLC.
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. Some debtors have friends or relatives living in foreign jurisdictions whom they appoint as initial or successor managers. A debtor serving as LLC manager has substantial control over the Nevis LLC and can maintain assets in the United States, Nevis, or anywhere else in the world. For example, a Nevis LLC may have a Florida bank account, or if appropriate, it may open an offshore bank account in Nevis or a bank in the European Union..
A debtor serving as manager of his own Nevis LLC maintains control over LLC assets, but he does not have the best asset protection. A Nevis LLC provides optimal protection if the debtor appoints as either the initial or successor manager an individual or company outside of the United States. A U.S court would not have jurisdiction over a foreign manager. An effective LLC operating agreement provides that the foreign manager cannot be removed by the debtor/member. It is critical that the U.S. debtor be willing to trust a foreign LLC manager if an aggressive creditor threatens to attack the Nevis LLC.
U.S. debtors must exercise due diligence to investigate and interview offshore companies that provide LLC management services. There are many reputable companies, but each person should interview companies who will have control over their assets transferred to the Nevis LLC. People should do more than rely on referrals from professional advisers in selecting an offshore manager for a Nevis LLC.
Often, people are surprised to find that offshore managers will conduct thorough investigation and due diligence about prospective customers. Offshore management companies are careful about with whom they do business, and they are subject to “know your customer” regulations.
Asset management within a Nevis LLC is like discretionary financial accounts offered by most U.S. financial institutions. A Nevis management company and its employees do not actually manage the LLC financial assets. Instead, the LLC manager hires a financial institution outside the U.S to invest the member’s money in securities located throughout the world, including U.S. securities.
As is the case in U.S. discretionary accounts, the Nevis LLC member can direct the LLC’s investment policy and goals. The member can instruct the LLC’s money manager about things such risk tolerance and asset allocation between bonds or equity and between U.S. or international markets. The money manager of the Nevis LLC normally sends the LLC member monthly statements and trade confirmations if requested.
Nevis LLC vs. Cook Islands LLC
The Cook Islands LLC law is also favorable LLC statutes. The Cook Islands law has similar asset protection benefits and barriers to collection. Nevis, however, has an important practical advantage. The Cook Islands are physically situated in the South Pacific Ocean near New Zealand. Travel to the Cook Islands is long and expensive. Nevis is situated in the Caribbean Ocean and can be reached by a short plane ride from Puerto Rico. It is easier and less expensive for a U.S. person to visit a manager located in Nevis than it is to meet a manager in the Cook Islands.
Things To Remember About Nevis LLC
There are five important things to remember about Nevis LLCs:
- A debtor should not serve as LLC manager if asset protection is primary purpose of Nevis LLC;
- Nevis LLC can hold assets in any jurisdiction; best if LLC assets are not held in U.S. financial institutions;
- Multi-member LLCs are required to file information reporting forms with IRS;
- Transfers of assets to a Nevis LLC can be attached as a fraudulent transfer;
- Realistic goal of Nevis LLC is to improve asset protection defenses and negotiating position for purpose of debt settlement.
Last updated on May 15, 2021