Nevis Strengthens LLC Regulations

Under Nevis law, establishing a limited liability company in an offshore jurisdiction has provided U.S. citizens with a layer of asset protection.  As of July 2015, the Nevis Assembly amended the Ordinance to improve the asset protection benefits of a Nevis LLC and further the advantages for offshore LLC formation. The significant changes pertaining to limited liability companies are summarized below.

Nevis LLC Management

Amendment to Section 37 now permits existence of a single-member limited liability company. The added language allows for a single member to hold all interests in the limited liability company. Owners of their own Nevis LLC’s maintain control over all LLC assets of the company with optimal protection benefits. Most importantly, single member LLC’s file IRS Form 8832 to qualify as a “disregarded entity” which have no effect on U.S. income tax. Furthermore, there are no accounting, reporting or auditing requirements for a Nevis LLC and is tax exempt on all income earned worldwide outside of Nevis.

The single-member management allows and 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.

Charging Orders

Section 43 amendments contain the provisions available to creditors to satisfy judgments against a member of a Nevis LLC. Charging orders serve as protection of members’ interest in a Nevis LLC with a statute of limitations of two years and are not renewable. Furthermore, the transfer of assets by a U.S. citizen to an offshore single-member LLC bares no adverse tax consequence and forces the U.S. creditor to obtain this charging lien in Nevis courts to enforce and collect a judgment against the member.

Upon expiration of charging order, any member may apply for the discharge of the order and the Nevis courts will satisfy the order where under the circumstances it is just and proper and the Creditor has been paid all sums under the charging order.  Also, the amendment states that distributions payable to the charged member may be offset by calls for additional capital contributions.

Overall, the new legislation limits fraudulent transfer claims and the likelihood of a creditor successfully reaching assets in a Nevis LLC. More importantly, the order allows the LLC to carry on its business and enter into new business ventures without being hindered by a creditor.

Below are the new 2015 amendments as discussed above.

  • 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 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 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.

 

 

 

 

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