As the offshore planning world turns, the limited liability company (“LLC”) is starting to appear with greater frequency as an alternative to the conventional offshore asset protection trust. It is desirable because unlike the offshore trust, which requires an independent trustee, the LLC permits the client to remain in full control as the Manager of the entity. While the typical offshore trust provides the highest form of asset protection, the asset protection afforded by the LLC is significant, and with retained control, provides a powerful combination. Recently, St. Vincent and the Grenadines as well as Nevis, have sought to improve their legislation by offering superior LLC statutes. Each is progressive and will be desirable for planners and clients alike.
St. Vincent and the Grenadines
St. Vincent and the Grenadines (“SVG”) has become the most recent entrant into the foreign LLC space. Recently passed limited liability company legislation puts SVG on par with other jurisdictions such as Nevis, Anguilla, and the Cook Islands. In particular, SVG has enacted compelling provisions regarding: 1) Charging Orders, and 2) Series LLCs.
Borrowing a little from Nevis and a little from Anguilla, the SVG statute offers LLC asset protection with “Charging Order” language that provides:
1. That a court may only charge the economic interest of a member, and,
2. The charging order is the exclusive remedy for a creditor.
By limiting the charging order to the “economic interest” of a member, the statute eliminates any ambiguity as to the ability to charge a member’s full membership interest. Further, by providing the much preferred “exclusive remedy” language, SVG has placed itself among the most desirable asset protection LLC jurisdictions.
In addition, SVG has actually surpassed many of its counterparts by including designated Series LLC provisions as well. The statute allows an LLC to establish “one or more designated series of members, managers or LLC interests having separate rights, powers, or duties with respect to specified property or obligations of the LLC, or profits and losses associated with specified property or obligations.” The designated series may also have a separate business purpose or investment objective.
This provision allows the members to carve up the LLC into multiple series – each dedicated to its own purpose, thereby insulating the assets or activities of each series from the liability associated with any other series.
Specifically, the SVG statute provides that “the debts, liabilities, obligations and expenses incurred, contracted for, or otherwise existing with respect to a particular series shall be enforceable against the assets of such series only, and not against the assets of the LLC generally or any other series thereof.”
The “insulation” provided by the statute for a given series will apply if:
1. The LLC provides for the establishment of a designated series
2. Separate and distinct records are maintained;
3. Assets associated with a series are held and accounted for in such separate and distinct records;
4. The LLC agreement so provides; and,
5. Notice of the limitation on liabilities is set forth in the articles of formation.
The series LLC legislation of SVG allows for an efficient structure to reduce filing fees while providing separate asset protection cells for the various assets or activities.
Nevis Proposed Legislation
Not to be outdone, Nevis has responded with its own proposed legislation to improve its already effective LLC statute. The improvements we can expect from Nevis include:
1. Series LLC – Nevis will similarly provide for designated series LLCs, and a “qualified” designated series will afford separate asset protection benefits similar to the SVG statute;
2. Other Remedies Prohibited – Nevis already has language declaring that the charging order is the sole and exclusive remedy, but now will also enhance the provision by expressly stating that no other remedies are allowed;
3. Single-Member LLCs – To avoid doubt, the charging order provisions will apply equally to single-member as well as multiple-member LLCs; and,
4. Time Limitation on Charging Order – Charging Orders will be limited to a single, three-year term that is not renewable.
If each of the foregoing amendments is made, Nevis will have the most comprehensive LLC statute for asset protection purposes. With so many clients seeking a foreign asset protection alternative to the offshore trust, this legislation, if enacted, will make the Nevis LLC a very popular solution.