Nevis LLC: State of the Art Asset Protection

Do you have business or investment assets you’re looking to protect from frivolous litigation? If you do, a Nevis limited liability company (NLLC) could be one if the most effective and least expensive ways to protect it.

The Nevis LLC ordinance came into existence in 1995. Today, it is undoubtedly the most popular non-US LLC in the world for reasons I’ll describe in a moment.

In common with an LLC formed in a US state, a Nevis LLC comes into existence upon the filing by a local agent. The owners of a Nevis LLC are called “members.” If the Nevis LLC carries out its business outside the Federation of St. Kitts & Nevis, its income isn’t subject to local tax, although it may be taxed in the residence country of its members.

Creditor Protection Features

Any LLC—including a Nevis LLC—protects its assets and operations from creditor claims against a member by limiting the remedy available to creditors to a legal concept called the “charging order.” Under the charging order concept, creditors of members of the LLC don’t generally have the right to force the business to liquidate, or to seize the interests of the liable member or members. Creditors only have the right to receive future distributions made from the business to the liable member.

In theory, even with a charging order in place, an LLC can carry on its business and even enter into new ven­tures and business activities without being hindered by a creditor. Non-liable members can receive monies from the LLC as advances, loans, or other benefits not classified as a distri­bution. Liable members can receive these benefits as well, although a creditor may be able to attach them.

Challenges with US State LLCs

The problem is that with LLCs formed in a US state, results-oriented judges have found ways to bypass charging order protection and attach the membership interest of LLCs. This problem is particularly acute in single-member LLCs, or when the liable member declares bankruptcy.

Legal Protections Unique to Nevis LLCs

Nevis LLCs don’t suffer from these problems.

Under the laws of Nevis:

• Judgments outside Nevis against Nevis LLCs or their members or managers aren’t automatically enforced. To enforce the judgment in Nevis, the creditor must first retain a Nevis attorney, who under local rules may not work on a contingency basis. That means the creditor is paying legal fees from day 1. The creditor must also post a cash bond with the local court. This is to cover any damages or court costs incurred as the result of any counter claim the debtor may be awarded. Nevis is also a “loser-pays” jurisdiction. The prevailing party in litigation is generally entitled to have its legal fees reimbursed by the loser.
• The “charging order” is the exclusive creditor action permitted against a Nevis LLC or its members. Creditors only have the right to receive future distributions made from the business to the liable member. They have no right to interfere in the business or to foreclose on the ownership interest of the liable member. Indeed, Nevis has no winding-up mechanism for LLCs, making the charging order truly the only way creditor can recover assets from a Nevis LLC.
• Only the LLC may be named as a defendant in any suit. A lawsuit against a Nevis LLC that also names its members or managers as defendants may be dismissed. This procedural requirement makes the process required to attach the interest of a member significantly more difficult.
• Proof of receipt of membership interest defeats a fraudulent conveyance claim. Under Nevis law, the transfer of assets to an LLC is not considered a fraudulent conveyance as long as the transferor receives a corresponding equivalent membership interest in the LLC. This doctrine holds true to defeat all creditors. This is true even if the creditor’s attack is based upon the LLC’s status as a single-member LLC.
• An enhanced burden of proof is required to prevail in a fraudulent conveyance action against a Nevis LLC. Local law requires proof “beyond a reasonable doubt” that a transfer was fraudulent for a creditor to prevail in a fraudulent conveyance claim.
• Procedural rules discourage frivolous litigation. In the unlikely event that a Nevis court finds your transfer of money or property to a Nevis LLC fraudulent, it will be set aside only to the extent necessary to satisfy actual damages (not punitive damages) suffered by a particular creditor. Moreover, each creditor must bring a separate action in the local court.

What about taxation?

A Nevis LLC is what is known in the tax world as an eligible entity for US entity classification purposes. Eligible entities are able to choose how they will be treated by the US for tax purposes. This gives US members in a Nevis LLC an enormous degree of flexibility on how they choose to have its income taxed.

For instance, if you’re looking to protect a portfolio of passive assets within a Nevis LLC, you’ll probably want to choose to have it taxed as what the IRS calls a “disregarded entity” (if the LLC has only one member) or a “partnership” (if it has more than one member).

If you’re a business owner operating a business outside the United States, you may choose to have your Nevis LLC taxed as a “foreign corporation.” This allows you to defer paying tax on your non-US business profits.

Need Help?

Over the past 40+ years, we’ve helped thousands of clients build better wealth protection plans. Structures that “de-risk” your assets and make you virtually immune to lawsuits is a big part of that.

Wondering if a Nevis LLC is right for you? Get in touch to see if our services are right for you. It starts with a free, no-obligation consultation with one of our Associates to see if you qualify. You can do that here.