Cook Islands LLC Pros and Cons

What Is a Cook Islands LLC?

A Cook Islands LLC is an offshore limited liability company formed under the laws of the Cook Islands.

In 2008, the Cook Islands enacted the Limited Liability Companies Act (modeled after Nevis LLC statutes) to meet global demand for flexible offshore company structures.

Like other LLCs, a Cook Islands LLC blends partnership and corporate features, providing limited liability to its members while allowing flexible management through an operating agreement. U.S. professionals, high-net-worth individuals, and business owners often utilize Cook Islands LLCs to protect their assets from creditors and lawsuits.

Cook Islands LLCs are typically utilized as asset-holding companies rather than operating businesses. They are often established as underlying holding entities in conjunction with a Cook Islands trust as part of an asset protection plan.

Cook Islands law limits a judgment creditor’s recourse to a charging order against the debtor’s LLC interest, obtained through the Cook Islands courts. This means creditors cannot seize the LLC’s assets outright. They can only get a lien on distributions (if any), and even that remedy expires after five years and cannot be renewed under Cook Islands law.

Charging Orders Against a Cook Islands LLC

U.S. courts can issue charging orders against a debtor’s LLC interests, but a U.S. charging order will not be recognized by Cook Islands courts.

A creditor must actually file a new action and obtain a charging order in the Cook Islands High Court, which requires relitigating the case under Cook Islands law in Rarotonga.

This extra hurdle often deters creditors. In fact, to date, we do not know of any U.S. creditors successfully obtaining a charging order against a Cook Islands LLC by using a U.S. judgment.

Some U.S. courts have tried to bypass offshore protections by treating foreign LLC interests as domestic property. For example, in one Florida case, a court allowed a creditor to foreclose a debtor’s interest in a single-member Nevis LLC through Florida proceedings, reasoning that the LLC interest was intangible personal property located in the U.S.

This highlights a potential risk if a debtor personally owns an offshore LLC interest. Because of this, we advise combining a Cook Islands LLC with an offshore trust for true protection.

When a Cook Islands trust holds the LLC, the debtor is not the legal owner of the interest, making it significantly more difficult for U.S. courts to exercise authority over the LLC or compel the turnover of assets.

In practice, Cook Islands LLC law ensures that even if a creditor goes through the trouble of obtaining a local charging order, that creditor only acquires the right to receive distributions if and when the LLC’s managers choose to make them. The creditor cannot interfere in the LLC’s management or force any distributions, liquidation, or dissolution of the company.

Advantages of Cook Islands LLCs

Cook Islands LLCs offer some of the strongest asset protection of any entity in the world. The Cook Islands legal framework was explicitly built to shield assets from foreign judgments and creditors. Key advantages include:

• Exclusive Creditor Remedy: By law, a creditor’s sole remedy against a Cook Islands LLC interest is a charging order issued in the Cook Islands. The law explicitly forbids any other collection methods. Even the charging order is a hollow remedy: it confers no ownership or voting rights, does not create a lien on the member’s interest, and expires after 5 years.
• Privacy and Confidentiality: There is no public registry disclosing the identities of an LLC’s members or managers. Only the licensed registered agent (a Cook Islands trustee company) knows the beneficial owners, and that information is kept confidential by law.
• Fast Formation: Setting up a Cook Islands LLC is relatively quick and straightforward once due diligence documents are provided. Incorporation can be approved within days after submitting the required forms to the Registrar.
• Political and Legal Stability: The Cook Islands is a politically stable parliamentary democracy with a legal system based on English common law. It has a long track record (over 40 years) of favorable court decisions upholding its asset protection statutes. The Cook Islands judiciary is independent, and final appeals can be taken to New Zealand’s Privy Council, lending additional credibility.

Disadvantages of Cook Islands LLCs

Despite their many benefits, Cook Islands LLCs are not a one-size-fits-all solution and do come with some drawbacks and considerations:

• Formation and Maintenance Costs: Establishing and maintaining an offshore LLC in the Cook Islands is more expensive than forming a typical domestic LLC. Professional fees for legal counsel, registered agent services, and government charges can add up. For example, forming a Cook Islands LLC with an attorney’s guidance can cost between $5,000 and $10,000 or more, depending on the complexity. There are also ongoing costs: the Cook Islands requires a local registered agent company that charges annual fees.
• U.S. Reporting Requirements: A Cook Islands LLC does not provide any U.S. tax shelter. In fact, owning one triggers several U.S. tax reporting obligations. American owners must be diligent in filing IRS forms each year. The LLC’s foreign bank accounts must also be reported annually.
• Not Ideal for Active Business Operations: Cook Islands LLCs are primarily designed for asset holding and lawsuit deterrence, rather than running an active business. Those looking to operate a business may prefer other structures, while the Cook Islands LLC is best suited for holding passive investments.
• Distance and Convenience: While you do not need to travel to form or manage a Cook Islands entity (everything can be done remotely), the time zone difference and distance can occasionally make real-time communication or in-person meetings less convenient.

Tax Considerations for Cook Islands LLCs

A Cook Islands LLC does not provide any tax advantages for U.S. citizens or residents. U.S. taxpayers are taxed on their worldwide income, which means any income earned through the LLC must be reported on their U.S. tax returns.

From a U.S. tax perspective, a foreign LLC can be treated in different ways depending on the elections made and the ownership structure. If a Cook Islands LLC has a single U.S. owner, it may be treated as a disregarded entity (akin to a sole proprietorship) for tax purposes, meaning the owner reports the LLC’s income directly on their own return. If it has multiple owners, it might be treated as a foreign partnership.

The Cook Islands itself imposes no local taxes on the LLCs’ income.

Combining a Cook Islands LLC with a Trust

For maximum protection, we often recommend structuring a Cook Islands LLC in tandem with a Cook Islands trust. Here’s how the combination works:

The Cook Islands trust is established first as the primary asset protection vehicle (with a licensed Cook Islands trustee holding legal title to the trust assets). The trust then forms and owns a Cook Islands LLC as a subsidiary company.

You, as the client, would be the beneficiary of the trust and could also be designated as the LLC’s manager or as a co-manager in the operating agreement.

The LLC, in turn, holds the liquid assets. For example, it might open an offshore bank or brokerage account where your funds are deposited. Or it might own subsidiary companies that themselves own real estate or other illiquid assets.

Cook Islands LLC FAQs