By Edward D. Brown, Esq., CPA, LL.M
Nevis, in the Caribbean, has accomplished two achievements this year. One is that it was recently removed from the “blacklisted” jurisdictions that the European Union otherwise adds to its list of “Uncooperative Jurisdictions for Tax Purposes.” Also, the Nevis government has updated its legislation that governs LLCs and International Business Companies (IBCs). One of the more notable changes is the removal of a $100,000 cap on bonds that a court can require of any creditor who is bringing any action against a Nevis LLC.
Offshore LLCs in general are frequently used in lieu of American LLCs that were created under any of the fifty United States’ laws because these offshore LLCs can offer stronger protections than their U.S. counterparts. This is true partly because there is no preemption risk (such as federal law trumping state law) or choice of law risk (such as a less protective state’s law being applied instead of the law of the more protective state in which the LLC was formed). Also, having the LLC offshore makes it more expensive for a creditor to pursue. For example, to bring any legal action against the assets of a Nevis LLC, the plaintiff may need to (as mentioned above) first provide a bond. Even then, under Nevis law, the charging order expires after three years and is nonrenewable. Nevis law provides that a charging order is the sole remedy available to creditors. Also, if an individual creates and funds a Nevis LLC, a creditor arguing that a fraudulent transfer has taken place is very difficult to show because the value of the LLC interest received in return for the assets contributed to the LLC is deemed to be of equal value, which by definition precludes the transfer from being a fraudulent transfer.
Using a Nevis manager, with no U.S. branches, can provide strong protection when the assets are not physically located within the United States. This Nevis manager would have control over when to make any distributions from the LLC, assuming the LLC operating agreement is properly drafted and cannot be amended without the Nevis manager’s consent, and assuming no US person has a power to remove that manager. Alternatively, it is not infrequent that a US person (who is creating the LLC) serves as the manager, with provisions in place that if a significant creditor action were to begin to brew, the placement of a Nevis successor manager would be automatically triggered to replace the US founder as a manager. Some Nevis LLCs are set up so that a “protector” is also empowered to replace the Nevis manager, if warranted.
The Cook Islands have similar laws for Cook Island LLCs. Cook Islands LLC law also keeps information confidential as to who the manager or owner of the LLC is. Under Belize law (Section 37(7)), before a plaintiff can pursue LLC assets, the plaintiff must deposit cash in the amount of the greater of $50,000 or one-half of the claim being sought. Furthermore, under the Belize International LLC statute, there is a duress provision that shifts control away from anyone who is being coerced to act against his or her own free will (assuming that affected parties are aware of the duress event). This way, the protection of the LLC assets remains under the control of a (for example) professional corporate Belize management company that acts in the best interests of the owner of the LLC as opposed to an owner’s creditors. For example, if a US person and a Nevis company serve as co-managers of a Nevis LLC, their joint signatures that would otherwise be required on any transactions affecting a Belize bank account would be automatically converted to an account that requires the signature of only the Nevis manager once a duress event occurs.
The above mentioned features of utilizing offshore LLCs have contributed to US persons setting up such entities in lieu of offshore asset protection trusts, typically for less in set up costs.
*The information in this article is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Greenspoon Marder LLP or the individual author(s), nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.
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