Does a Single Member LLC Need a Limited Liability Company Agreement?

This is a letter in response to a reader regarding offshore limited liability companies (aka Foreign Limited Liability Company or FLLC) in asset protection planning and specifically addresses issues surrounding the Nevis LLC. LegalZoom vs Incfile

Re: Using Offshore Limited Liability Companies for asset protection planning, specifically addressing – “fraudulent conveyance.”

Dear Rick (not their real name),

You have asked me about the importance of using Foreign Limited Liability Companies (FLLCs) in certain circumstances where one of the members may be under attack by a creditor and the possible “fraudulent conveyance rules” bearing on the transfer of underlying assets.

It’s really a justice system run amuck. In America, we have a highly unusual judicial system. There are contingent-fee lawyers who act like predators and there are judges and juries who act like Robin Hoods, determined to redistribute your wealth. The statistics are astounding. Did you know that you will be sued more times than you will have a hospital stay?

Our judicial system helps them by making it easy for plaintiffs to sue you. Plaintiffs and their lawyers can and will sue you for just about anything they can dream up and the plaintiffs don’t need to pay their lawyers in advance. They will work for a percentage of whatever they can squeeze out of you.

Any clever, contingent-fee lawyer can successfully cast you as the villain. You are the “greedy rich” at the expense of working stiffs and the judges and juries are out to balance the wealth to the so-called “poor”.

ON THE NEVIS LIMITED LIABILITY COMPANY AS A FOREIGN LLC

At a time when offshore trusts are under a magnifying glass, some clients and their U.S. financial planners are looking for alternative strategies. One such strategy may involve the use of Foreign Limited Liability Companies (FLLCs) for absolute asset protection and strengthened wealth preservation. I’m presenting to you the use of a “Nevis Limited Liability Company” as the preferred “legal entity” alternative because of Nevis’s strong asset protection legislation against fraudulent conveyance.

Nevis is an offshore island in the eastern Caribbean Sea consisting of Saint Kitts (Saint Christopher) and Nevis. Nevis became independent from the United Kingdom in 1983. Under the Nevis Business Corporation Act (the ACT) of 1984, tax holidays are provided to all companies that carry on business outside its tax-haven jurisdiction. Major banks such as Barclays International, Royal Bank of Canada, and the Bank of Nova Scotia are located in Nevis with excellent banking facilities and wire transfer services.

THE LIMITED LIABILITY COMPANY

All 50 American states have adopted Limited Liability Company (LLC) legislation and many foreign jurisdictions including tax-free Nevis, are familiar with this legal entity. The LLC is a hybrid of the limited partnership and the corporation. A limited partnership is comprised of a general or managing partner, and a group of investors or limited partners. The appeal of an LLC stems from the fact that it will be treated as a partnership for tax purposes, while still providing its members with corporate-style protection from liability.

The problem however, as with any United States legal entity, is the application of “fraudulent conveyance rules” for any asset transferred while an existing or potential creditor could possibly under even the most unusual circumstances place a claim, as frivolous as it could be. The U.S. courts have been extremely sympathetic, as they have time and again enforced equity over legal precedence.

THE NEVIS LLC COULD AVOID FRAUDULENT CONVEYANCE

What distinguishes the Nevis LLC from the American LLC is the pro-debtor approach to its legislation. Where a member has an existing creditor, for example, Nevis LLC legislation allows the member to place assets into the LLC and avoid a claim of “fraudulent conveyance” if the member’s interest remains proportionate to the contributed capital.

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