Asset protection does not only remain topical for many people, but is also becoming more and more acute every year. However, there is only a handful of solutions that have remained effective and predictable over time. For example, although offshore asset protection trusts are excellent estate planning and tax mitigation tools, in some business activities foreign LLCs and their subsidiaries are still a better path to choose – for example, LLCs are really useful for US customers, because they are transparent for taxation purposes. And Nevis and its LLCs are definitely among the best to choose from, with their excellent reputation around the world as powerful wealth protection tools at reasonably low costs.
The Nevis LLCs are perfect for individuals or small groups planning to protect their assets from creditors, excessive taxation or confiscations.
Key Takeaways
- A Nevis LLC provides strong statutory protection against a claim against an individual member. The charge framework is governed by the Nevis LLC Ordinance and governs the charging order against a member.
- A charging order does not grant a creditor the same rights and control over the LLC and its assets as the member. A charging order only gives a creditor the right to receive distributions of cash and property (as and when they are distributed by the LLC) in respect of the member’s interest as it existed at the time of distribution.
- Please note that non-renewal is the nature of charging orders issued in Nevis, and such orders expire 3 years from the date of their issuance, in accordance with the Nevis LLC Ordinance.
- However, the creditor must pursue specific enforcement remedies in Nevis and post a bond in an amount fixed by the High Court.
- Transferring assets to try to avoid an existing creditor is usually a high-risk strategy that would deteriorate rapidly as soon as a claim or dispute were to surface.
- Setting up a Nevis LLC does not automatically eliminate all tax and reporting obligations for the owner in their country of residence, citizenship, or business activities.
- However, the most suitable structure depends on several individual factors, such as assets, residency, worldwide business activities, creditor risk, and the future needs of the owner(s).
Key Features of a Nevis LLC
The appeal of an LLC (including a Nevis LLC) stems from the fact that in other countries it is treated as a partnership, which makes it transparent for tax purposes, while still providing its members with limited corporate-style protection from liability. The big advantage of LLCs is that it is much better understood by clients around the globe than some of the more freshly concocted structures offered by various offshore financial centers.
The LLC is a hybrid type of legal entity that combines certain traits usually associated with corporations, and other traits normally associated with partnerships. It offers a great deal of flexibility, with an emphasis on freedom and enforceability of contract. It has been said that whereas IBCs and corporations must be registered according to specific laws, LLCs allow you to write your own corporate law. Unlike corporations which have shareholders, the owners of LLCs are known as ‘members.’
This is important, because the members combine the best features of both worlds:
- transparent taxation (the taxes are not paid by the LLC, but by the member themselves, according to the tax rate in the country of residence);
- limited liability (the limit is set according to the volume of investments);
- flexible ownership and management structure;
- personal asset protection.
Instead of directors, an LLC is headed by employed managers. While a manager is typically also a member, under the LLC acts of most jurisdictions, a manager need not be a member. The management structure of a corporation usually consists of two levels of decision-making (board of directors and executive officers), while LLCs in Nevis and other countries can be operated with only one level of decision-making, i.e., managers. Thus, the LLC tends to be a more flexible and understandable business entity.
While corporate statutes are generally written to accommodate the needs of businesses with large numbers of passive stockholders, LLC acts are generally written with small businesses or individual entrepreneurs in mind.
Why Are Nevis LLCs Used for Asset Protection?
LLCs create a division between the company and its members, although the extent of this division between the company’s assets and the members’ personal assets is determined by the state in which the LLC is organized. A Nevis LLC sets forth in jurisdiction-specific language the manner in which creditor protection applies with respect to a member’s interest.
The key distinction lies between:
A creditor of the LLC
and
A personal creditor of an LLC member.
The first scenario is when a creditor pursues the LLC for its debts and its obligations (the general assets of the LLC). That type of creditor is addressed through general asset protection strategies offered by Nevis LLCs. The second scenario addresses the personal creditor of an LLC member when that member’s assets are placed within the member’s interest in an LLC owned by that member.
Within the specific parameters of the remedies available concerning a member’s interest in a Nevis LLC, charging orders are the particular recourse afforded a personal creditor of an LLC member.
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How Nevis LLC Asset Protection Works
We will address the various methods by which a creditor can attempt to collect against a member of an LLC in Nevis as well as the laws governing such methods. Our treatment of methods to collect against a member of an LLC in Nevis shall begin with a general overview of a charging order and the rules that apply to enforcement by means of a charging order against members of LLCs in Nevis.
1. Charging Order Protection
A charging order can be obtained against an LLC member in Nevis in accordance with Section 60 of the Nevis Limited Liability Company Ordinance by recording a judgment against the LLC member in Nevis.
A charging order issued against a member of an LLC allows a judgment creditor of that member to receive exactly the same economic returns from the member’s interest in an LLC’s profits and losses as the member would receive in the absence of the judgment and the charging order.
This distinction is crucial.
It is worth noting that there is a huge difference between a creditor of a member of an LLC seeking to seize the member’s interest in the LLC and a creditor of a member of an LLC allowing the judgment creditor to receive the same economic benefits from distributions of profits and losses as the member would receive in the absence of the Charging Order and in accordance with the terms of the Charging Order and relevant legislation.
2. What a Charging Order Does (and Does Not) Do
The Nevis LLC Ordinance severely restricts the credit rights of a creditor who has obtained a charging order against the membership interest of an individual member of an LLC.
| A charging order may allow a creditor to | A charging order does not automatically allow a creditor to |
| Receive qualifying distributions attributable to the debtor-member’s interest | Become a member of the LLC |
| Pursue the remedy provided by the Nevis LLC Ordinance | Obtain the member’s voting or management rights |
| Recover the amount permitted by the judgment and applicable law | Interfere with the manager’s management of the LLC |
| Seek enforcement through the applicable Nevis legal process | Liquidate or seize the LLC’s assets |
| Restrict the LLC’s business or force its dissolution |
A creditor who has obtained a charging order against a single member of a Nevis LLC has very limited rights against that member. That creditor does not obtain any interest in the membership interest of that member and therefore is not a member of the LLC or a participant in the management of the LLC. They are further restricted with respect to the management of an LLC. Also, his rights and the rights of such a member with respect to winding up of an LLC and the assets of an LLC and the dissolution of an LLC are all very restricted.
Does a single member’s creditor have the right to go after the assets of a Nevis LLC? The answer is simple: NO. The assets of an LLC are safely beyond the reach of a single member’s creditor.
3. The Three-Year Charging Order Limit
Charging orders on a Nevis LLC are valid for up to 3 years from the date of registration of the LLC as set out in Section 203(4) of the Nevis LLC Ordinance.
Once a charging order has been registered, Section 203(4) of the Nevis LLC Ordinance places significant restrictions on the creditor of a Nevis LLC who is seeking to collect on a judgment entered against the LLC.
Important to note that, even if the time limit of a charging order has expired, the judgment still is enforceable, and further terms of the judgment or alternative remedies may be available to the creditor to satisfy any judgment debt.
4. A Creditor Cannot Simply Force an LLC Distribution
A charging order only affects distributions of an LLC to its members. It does not determine how an LLC will invest its money, and it does not satisfy a member’s request for distribution of assets.
Importantly, the nature of a charging order with respect to distributions by an LLC can change dramatically at the time of distribution of funds to a member by the LLC.
Understanding the main differences between an LLC’s assets and those of its members helps to better determine if a Nevis LLC is the right asset protection structure.
Additional Legal Barriers for Creditors
The procedures a creditor must go through to try to collect on a civil judgment in Nevis against an LLC member or the LLC itself are set forth in the Nevis laws. While these procedures can be quite complex and costly, there are ways to enforce and collect a foreign judgment in a Nevis court, and there are generally expected to be recovered a significant portion of the amount of the foreign judgment.
Creditor Bond Requirement
Section 62 of the Nevis LLC Ordinance sets out a procedure where a creditor of a member or an LLC must obtain a bond from a financial institution in Nevis prior to proceeding with any enforcement action for a charge or lien in respect of a judgment obtained in a foreign court outside of Nevis. The amount of the bond required is determined by the High Court in Nevis.
By current legislation there is no fixed bond amount of $100,000.00 specified by legislation. Instead, it is the discretion of the High Court in Nevis as to what amount will be fixed from time to time for such bond.
This is a significant change from the previous legislation that had fixed a $100,000 bond requirement.
The above additional steps to recover a debt in Nevis are likely to involve some cost and considerable time but these should not be barriers to recovery for a creditor.
Foreign Judgments and Nevis Proceedings
Foreign judgments do not necessarily mean that all necessary steps can actually be taken in a foreign jurisdiction.
Section 61(3) of the Nevis LLC Ordinance details foreign judgments and the ways in which such enactments may be enforced in a foreign country against an LLC and/or its members.
Even where a foreign court has entered a judgment against an owner of a Nevis LLC, that judgment is significant to creditors in order to be enforced against the owner of the LLC or its assets in a particular foreign country.
We also provide foreign counsel with international advice on matters relating to LLCs and their Members when situated in other countries and work with local attorneys in those foreign countries.
Nevis LLCs and Fraudulent Transfers
Instead of trying to protect your assets after the fact, asset protection is better to implement before a problem arises.
Nevis LLCs are not intended to be used as a means to protect assets from creditors in a pending lawsuit. The Nevis LLC laws deal with issues of fraudulent transfers and issues that a transferor’s assets can become subject to as part of a creditor challenge to an asset protection strategy, but that does not mean that Nevis LLCs can be used as a solution to existing problems.
A Nevis LLC should not be used as part of a strategy for asset protection in the face of ongoing litigation or creditor claims. This is not a solution to current problems.
Important: there is so much more to effectively protecting assets than the formation of a Nevis LLC or or other entities as part of an overall asset protection strategy. And all assets of the owner(s) of any such LLCs to be utilized in asset protective transfers into such LLC(s) must have a legitimate, bona fide commercial purpose or other valid business reason for the same to be transferred to said LLC(s).
What Does a Nevis LLC Protect Against?
Asset protection is a principal purpose of a Nevis LLC. It shields the assets of its members from certain claims by personal creditors, including former business partners and even ex-spouses.
Potential areas of protection include:
- Claims against an individual member’s economic interest;
- Attempts to gain control of the LLC through a charging order;
- Attempts to garnish, take possession of or to foreclose on the assets of an LLC in which a member holds only an economic interest.
- Not recognized by laws of Nevis with respect to foreign enforcement efforts such as foreclosure or other similar actions.
The degree to which Nevis LLCs can protect your assets depends upon the circumstances at hand and upon the laws of other jurisdictions where such protection is sought.
What a Nevis LLC Does Not Protect Against
These are some of the examples of things the limited liability protection of a Nevis LLC does not protect.
- Legitimate claims against the LLC itself;
- Criminal liability;
- Tax obligations in other jurisdictions;
- Mandatory tax or financial reporting requirements;
- Claims against the assets of the LLC in foreign jurisdictions with differing legal remedies;
- Fraudulent or improper transfers;
- Any potential court order affecting an individual personally;
- Ineffective management, lack of documentation, or poor structuring.
The Nevis LLC is a key component of a sound asset protection structure. But a single entity alone is not enough to properly protect one’s assets. Strong, solid documentation, as well as effective legal and tax advice, is needed to properly implement a Nevis LLC as part of a complete asset protection plan.
Nevis LLC Taxation: What Does “Tax Neutral” Mean?
Asset protection and tax planning are separate considerations.
The formation of an LLC in Nevis does not automatically exclude the owner of the LLC from tax in his/her home country.
The tax treatment may be influenced by:
- The tax residency of the owner;
- The domicile or other taxation status of the owner;
- The location of management and control of the LLC;
- The jurisdiction in which the business operates;
- The type and geographic location of the LLC’s assets;
- The home-country reporting requirements for the owner;
Is the owner of a Nevis LLC considered a controlled foreign corporation (CFC) or a clear pass-through entity for tax purposes?
Note: In the light of amendments to Nevis’ taxation law recently passed, such confirmation would have to be updated again in any case, as previously verbally represented to us by confirmation of a 0% tax rate for members of a Nevis LLC.
Typically, an LLC organized in Nevis will not pay local taxes on its profits. Home country taxes on profits in a Nevis LLC can be very high and must not be overlooked in the planning to minimize taxes through the use of a Nevis LLC.
Legal Framework for Nevis LLCs
Nevis LLCs are established under the laws of Nevis contained in the Nevis Limited Liability Company Ordinance. Initially enacted in 2017, the LLC legislation has been amended from time to time and the most up-to-date laws for LLCs and all other financial services companies and activities, plus a host of other very useful information regarding financial services in Nevis, can be found on the website of the Nevis Financial Services Regulatory Commission (FSRC). Specifically with respect to the asset protection afforded to LLCs against charging orders and other claims by creditors of members or of the manager(s) of LLCs, and the method or processes by which a creditor of a member or the manager of an LLC can seek to attach a member’s interest in the LLC, are set out in the LLC legislation.
In respect of charges upon LLC members and their interests in such members, the LLC legislation provides that charging orders issued against LLC members and their interests in such members shall not confer any right upon such creditor or other person as would entitle such to act as and to hold stock or membership in and to exercise the rights of a member in or manage the LLC of and on behalf of such member. A charging order, issued against an LLC member, shall not be renewable and shall cease to have effect three (3) years from and after the date of issue thereof.
As mentioned earlier, Garnishment In Trust (GIT), as well as other enforcement processes such as enforcement of a money judgment via execution by Nevis Courts against an LLC and/or its members, are available to creditors against LLC members. In addition, such creditors would be required to post a bond with the appropriate Nevis High Court on a case-by-case basis. It is therefore also very important to compare how an LLC’s asset protection attempts to prevent and/or avoid transfer of asset(s) within an LLC as well as alleged fraudulent transfer(s) of assets by and/or between members and managers as well as third parties in Nevis compared with corresponding legislation and laws applicable in foreign countries and their various jurisdictions regarding fraudulent transfer(s) of assets.
Nevis LLC vs Nevis Trust
A Nevis LLC and a Nevis Trust can both play a role in asset protection, but they are not interchangeable.
| Nevis LLC | Nevis Trust | |
| Primary function | Asset holding, investment or business structure | Wealth preservation, succession and asset protection |
| Management | Members and/or managers | Trustee |
| Direct control | Generally greater | More separated from the settlor |
| Business use | Often suitable | Depends on structure |
| Estate planning | Limited compared with a trust | Stronger |
| Asset protection | Strong statutory framework | Can provide a different layer of protection |
In some cases, the two (or even more) structures can be used in combination. However, that decision should be made based on your personal objectives and goals, as well as other factors that you need to take into consideration.
Conclusion
A Nevis LLC can be a powerful part of an international asset protection plan. Creditors of an LLC member have few remedies compared to most other jurisdictions where the LLC member resides.
A Nevis LLC is protected by a charging-order structure. The only thing that a qualifying judgment creditor can get is a right to receive distributions with respect to the member’s interest. The creditor will not have the right to manage the LLC or to use any of its assets. Moreover, the charging order expires by operation of law after three years.
Also important are further protective measures for LLC members, i.e., the creditor bond requirement and the provisions concerning foreign enforcement and fraudulent conveyances. Importantly, however, such an LLC does not offer complete and absolute protection against all legitimate debts and liabilities.
Once you have determined that a Nevis LLC is the best solution for your situation, it is also important to consider other factors in planning an effective asset protection strategy, such as where the owner resides, where the owner’s assets are located, and where the owner does business, as well as potential liability for debt.
We can evaluate your specific needs and provide the various alternatives available should you consider a Nevis LLC structure. It’s best to get a competent attorney and tax advisor involved well before transferring any assets or setting up an offshore structure. Q Wealth can recommend competent individuals.
