A Nevis LLC is a limited liability company formed under statutes enacted in the Caribbean island of Nevis. Nevis enacted LLC statutes in 1995 and amended them in 2015, further enhancing its asset protection features. Nevis is an island that makes up part of the Federation of Saint Kitts and Nevis. Nevis is located about 1300 miles southeast of Florida and about 300 miles east of Puerto Rico. It has, since 1984 when government enacted the Nevis Business Corporation Ordinance, promoted itself as an asset protection haven.
Establishing an LLC offshore can provide as additional layer of asset protection over US LLCs. This is because the assets, if held in a foreign account in the company name, are outside the reach of US courts. Plus some foreign jurisdictions have LLC statutes that offer superior asset protection compared to US statutes.
The Island of Nevis, in particular, enacted favorable LLC laws in 1995. A US person, in turn, can use a Nevis LLC plus an offshore bank account or investment account as a way to help protect the funds from domestic lawsuits. Alternatively, one can use the company to run a business in the United States. Doing the latter is just a matter forming a company and then filing foreign qualification papers in the state where one wishes to operate.
The Nevis legislature amended the Ordinance in 2015, which further increased the asset protection benefits of a Nevis LLC. First of all, Nevis allows single member limited liability companies the same protection as multi-member ones, unlike the majority of US states. That is, Nevis law establishes a charging order lien as a creditor’s exclusive remedy to attack a debtor’s ownership interest in a Nevis LLC formation even the LLC is only owned by one person. That is, someone with a judgment against the owner of a Nevis LLC cannot take the LLC nor the assets inside.
Better yet, if a US person or company has the charging order, the person holding the charging order is required to pay taxes on that portion of member’s the profits made inside the company whether they receive the distributions or not (Rev. Rul. 77-137). This is because the one who has the right to receive the distributions is the one responsible for the tax bill, whether the profits are actually distributed or not. One more time, yes, the one who sued you would now be responsible for paying your Nevis LLCs tax bill, even if you decide not to make distributions to them from your company. Charging order liens in Nevis expire after three years and are not renewable.
A US citizen transferring assets to an offshore single member LLC does not trigger tax consequences that would normally be linked to the transfer of assets to other types of offshore entities. Nevis does not recognize foreign judgments. Management in our Nevis office knows of no case where a US creditor has ever obtained a charging order lien through Nevis courts to enable them to enforce a judgment from the US.
It gets even better. The 2015 amendment reduced the fraudulent transfer statute of limitations in Nevis to only two years. That means, once you transfer assets into a Nevis LLC, two years later the courts will refuse to hear the case. Even better, the creditor must prove beyond a reasonable doubt that the debtor transferred assets to a Nevis LLC to hinder or delay creditors. Informing the courts that you simply moved assets into the Nevis LLC to diversify internationally may cast enough reasonable doubt against fraudulent transfer accusations to keep creditors at bay. Moreover, the 2015 amendment makes a creditor post a $100,000 bond before filing legal documents to enforce a judgment against a Nevis LLC member.
On the other hand, US courts consistently hold that creditors can foreclose a debtor’s interest in a US single member LLC through US state court proceedings. US LLCs have the charging order lien protection as well. However, US courts consistently break through the protection afforded by US LLC statutes. Not in Nevis.
How does this help in US court? Additional amendments made in 2015 to Nevis LLC statutes can be very beneficial to defend assets held therein from attacks in US courts. The 2015 amendment to the Nevis LLC statutes possess verbiage protecting members who have charging order liens on their interest in the company. That member’s interest may be obtained by the other LLC members who do not have liens on their membership. For example, let’s suppose a company is owned by a husband, wife and two children. The father gets a judgment against himself and his interest in the LLC obtains a charging order. The wife or children can obtain his interest in the LLC free from the charging order. Alternatively, he can redeem his own interest in the LLC with other assets, including assets that are exempt from judgment creditors.
In addition, the new statutes provide that even if a member has a charging order, he can still contribute additional capital. Plus, if there are two or more members, the member that is free to make distributions may do so without the need to make distributions to the charged member that would result in seizure of that portion of the distribution.
The two prior conditions have to do with the inner workings of the LLC and its members. In just about all US jurisdictions, issues having to do with inner-company matters and among the LLC members are regulated by the jurisdiction where the entity was formed and not by where the members or owners live.
A US person operating a Nevis LLC may need to do a simple, one-time filing of the IRS Form 8832. Whereas, by default, US single-member LLCs receive sole-proprietor or “disregarded entity” tax treatment and multi-member LLCs are taxed as partnerships, offshore LLCs need to file the 8832. As such, a Nevis LLC is considered tax-neutral and should have no effect on taxation to the US person. Nonetheless, so we don’t appear to be giving tax advice, we recommend consulting with a CPA who is experienced with offshore structures.
Another nice feature of the Nevis LLC is that members or managers do not have to live in Nevis. For example, the manager of a Nevis LLC may be a member and may also be a debtor with a judgment against himself or herself. That person may live in the Unites States or any other county on the globe. If someone has a judgment, that person can have a significant amount of control over the Nevis LLC, which can hold assets in any country. The Nevis LLC can hold assets in the US, Nevis or anywhere else. The Nevis LLC may have a bank account in California, Nevis, Switzerland or elsewhere.
Whereas it is possible, it is not optimal from an asset protection standpoint if a judgment debtor is also the manager of his own Nevis LLC. It is better to appoint a manager who lives outside of the US. Since US courts do not have jurisdiction over offshore LLC managers, a US judge cannot successfully enforce an order for the foreign person to send the funds back to the US. So, a properly drafted operating agreement will not allow a judgement debtor to remove a foreign manager, otherwise a US judge could order him to do so. Our Nevis affiliate organization is licensed and bonded by an insurance company to act in the best interest of clients. So, if the assets have a 100% chance of being seized by a creditor if they remain in the US, two choices come to mind. Option one is to do nothing and let someone seize your hard-earned assets. Option two is to temporarily have a company take the reigns that has gone through the intensive backgrounds checks necessary to obtain a Nevis license and whose actions are backed by an insurance company. In which scenario are the odds more in your favor? For those who do not have trusted friends or family members residing abroad, there are very reputable, longstanding trustee companies that have never taken a client’s money that can step in as initial co-managers or successor managers who can protect you when the “bad thing” happens.
The ultimate asset protection arrangement involves an asset protection trust in Nevis or the more popular jurisdiction of the Cook Islands. In this arrangement, the offshore trusts holds all of the membership interest in the Nevis LLC. The client (and/or his or her spouse) is the beneficiary of the trust and is the manager of the Nevis LLC. The Nevis LLC, in turn, holds one or more bank accounts. The client is the signature on the bank account. When the bad thing happens, the trustee of the trust can step in as manager of the LLC, putting the client in a position of impossibility if a local judge orders him to repatriate the funds. There is no “fraudulent transfer” of assets when the position of manager changes because there are no assets being transferred. Only a position in the company changes.
When choosing a trustee, it is important to make sure that it is someone you can trust. If the trustee has a license in Nevis or the Cook Islands you can rest assured that the government has run significant background checks on its officers, directors and owners. In addition, the trust companies are regularly audited and scrutinized by their local regulators. Because a sizable amount of the revenue in these jurisdictions comes from the offshore services industry, these countries work very hard to uphold the reputation of their respective jurisdictions. Incidentally, you will discover that the offshore management companies run a much more thorough background check on you than you will on them. They want to make sure they are doing business with reputable individuals operating with legal sources of funds. Maintaining their licenses depend on it.
What you will find is that when you have a legal emergency and you want a Nevis LLC provider to come to the rescue, they do not manage your assets for you directly. Just like a managed investment account in the US, they assign an investment professional at a money management firm to invest your money for you, with your guidance. So if you need to have a trustee step in as manager of your Nevis LLC, they employ a bank’s investment manager in Switzerland, for example to handle your investments. The investment firm will typically contact you, propose a portfolio, and then seek your input.
So, like US managed accounts, you let the manager know your risk tolerances and the institution will come up with a proposal for you to approve within the Nevis LLC. So you can have them choose the appropriate mix of stock, bonds, precious metals and/or interest-bearing investments to meet your comfort level. In the case of Switzerland, a banker from that jurisdiction will often eventually fly in to meet with you personally when he is in the area visiting other clients. You will have online access to your account so you can check your investments. You may also receive paper statements and investment confirmations from your Nevis LLC account if you request them.
There are multiple Nevis LLC advantages, including the following:
The Nevis LLC is created under the Nevis Limited Liability Company Ordinance 1995 and as amended in 2015. The statutes were originally based on the company statutes in the very favorable US State of Delaware.
The Nevis Limited Liability Company (Amendment) Ordinance, 2015 (the “Ordinance”) was enacted on July 1, 2015. There were two major asset protection revisions. First, there was a restatement of the section dealing with charging orders. Second, there was a new section added regarding fraudulent transfers.
The main change to the charging order section is that the charging order is the sole remedy that is available to any judgment creditor (including a bankruptcy trustee). That is whether the Nevis LLC has only one or has multiple members, Nevis courts will not allow seizure of the LLC or the assets held therein. Moreover, the charging order is not allowed to include amounts that arise from fines, penalties or punitive damages.
The charging order against a Nevis LLC is not considered a lien on that member’s interest in the company. The one who has the charging order may not jump in and become a member, so the original owner retains his ownership. They cannot exercise the rights of any member. The holder of the order cannot interfere with any management decisions. They cannot liquidate or seize any assets of the company. They cannot restrict the company’s activities. They cannot dissolve the entity.
Unlike a US judgment that typically lasts for 10 years with a 10 year renewal (for a total of 20 years), a Nevis LLC charging order is not renewable and has to expire after three (3) years after it is filed. Moreover, the company can continue to seek additional investments from its members and can hold onto the distributions that would usually go to the the charged member.
In Section 43A, a new statement was added dealing with fraudulent transfers into the company. This section addresses creditors who try to seize assets that a judgment debtor has transferred into the company. Taking after Nevis and Cook Islands trust law, this section says that a creditor needs to prove beyond a reasonable doubt that the reason for the transfer was to defraud that particular creditor and that the member, thereby, was made insolvent. Moreover, the calculation includes the entire fair market value of the member’s interest in the LLC. So, if the fair market value of the member’s assets were greater than the amount of the creditor’s claim when the transfer was made, the courts do not consider the transfer to have been made with fraudulent intent.
In summary, unless the client says, “Yes I put my assets in the Nevis LLC in order to keep them away from you Mr. Creditor,” and gives some other legitimate reason for moving the funds, the reasonable doubt statute should suffice to prevent a charging order against the LLC. Even if a creditor receives a charging order against the LLC, the statutes make it virtually impossible to obtain company assets.
The sooner one puts assets into a Nevis LLC the better. The reason is that there is a two year statute of limitations for a creditor to file claim against a member’s interest. Even more painful for the one filing the lawsuit, a creditor is required to post a $100,000 cash bond up front with the courts before filing. So, the Nevis LLC statutes are riddled with multiple barriers to prevent creditors from getting to a member’s assets.