In order to diversify risk, someone with multiple rental or other investment properties would likely be advised to place each property into a separate entity. This was traditionally achieved with the use of a corporation or limited partnership in years past. Recently, however, the limited liability company has quickly become the entity of choice for real estate holdings.Placing high risk assets in separate entities, away from each other, and especially separate from low risk assets, defines asset protection. For example, someone who operates a demolition company through use of a corporation or LLC should not then place an investment rental property in the same LLC or corporation. Similarly, someone with a large amount of low risk assets such as cash, securities, etc. should not be advised to place those assets into the same entity as an ongoing business. But, adherence with the principle tenets of asset protection can be costly. Placing each parcel of real estate into separate entities incurs separate filing fees, and incurs additional legal and accounting fees in most instances.However, there is a solution to the increased fees associated with multiple filings: the Series LLC. The Delaware LLC Act first authorized the creation of separate series within the same LLC. Under the Act, debts and other liabilities under the Delaware Act are enforceable only against the segregated assets in the particular series to which those assets have been placed. (Delaware Limited Liability Company Act, Section 18-215). The Delaware Act also states that each series may have different members, or the same members with different percentages than in other series apart of the parent LLC, providing flexibility for projects with multiple investors.This combination allows a series to be treated in many ways as a separate and distinct LLC. The Act also authorizes the Operating Agreement of the LLC to designate a series of members, managers or other interests that have separate rights and duties with respect to specific LLC property.Recently, the Illinois General Assembly has adopted an amendment to the Illinois LLC Act authorizing the creation of the series LLC. (805 ILCS 180/37-40). Similar to the Delaware Act, the Illinois Act states “the debts, liabilities and obligations 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 series thereof,….”. (805 ILCS 180/37-40(b)). In terms of real estate investments, this means you can create one parent LLC with multiple series to protect your assets, avoiding multiple state filing fees, legal fees and other professional costs associated with creating each separate LLC.In order to create a series LLC, special language must be included in the Articles of Organization, which is filed with the Illinois Secretary of State. A Certificate of Designation for each series apart of the LLC must also be filed with the Articles of Organization.Keep in mind, obtaining and preserving separate liability status requires that each series be operated as a separate entity. This means separate records should be kept for each series, with the assets of each series identified. Unfortunately, case law is largely undeveloped for the series LLC structure. This is especially true in Illinois. Without the benefit of judicial decision, many facets of the new series LLC legislation may be subject to reasonable difference in interpretation. For instance, some practitioners have argued that it is safe practice to provide each series with a separate bank account.Additionally, an entity formed in one state cannot do business in another state unless it is first “qualified” to do business in the foreign state. This is achieved by filing an application with the secretary or department of state of the foreign state and paying some sort of a foregin filing fee. Without qualifying to do business in the foreign state, the entity may later incur penalties and other fees for not doing so. Once an entity qualifies to do business in the foreign state, it basically becomes subject to that state’s laws, presenting a problem for the series LLC structure.If an LLC is formed in Illinois, and qualifies to do business in another state so that it can own real estate in that state, then that LLC becomes subject to that state’s law. The exception is the internal affairs and management of the LLC itself. The non-formation state will normally apply the law that is either designated in the LLC’s Operating Agreement or the laws of the formation state. But, this typically involves disputes between members as to how the LLC is owned or operated and does not include disputes with creditors or third-parties who are not a party to the operating agreement. Any state without Series LLC legislation is very unlikely to apply the Series-legislation as to creditors, claimants, and other third-parties who did not agree to be bound by the Series legislation.This problem is why corporations, LLCs, and other entities formed in other jurisdictions probably don’t offer any advantages over those formed in the state where property will be held.Regardless of any perceived disadvantages, this structure is quickly becoming the vehicle of choice for Illinois investors with multiple properties.
Nevis, a small island in the Caribbean, is a part of the politically independent Federation of Saint Kitts and Nevis. Since the adoption of the Nevis Business Corporation Ordinance in 1984 Nevis has become an attractive and convenient offshore business location.The government of Nevis is committed to assisting international investors which combined with Nevis convenient location and the fact the Nevis laws are based on US and British legal principles makes Nevis a logical location for American and British businesses to consider when forming an offshore corporation.Advantages of an offshore corporationMany investors and business people are attracted to offshore corporations as a way to avoid complicated legal requirements, potential lawsuits and to enhance the privacy and security of their corporate assets.An offshore corporation can provide the owner financial confidentiality and asset protection. A personal offshore bank account offers little security or privacy. However, an offshore account in the name of an offshore corporation will provide the investor with both asset protection and privacy.An offshore corporation is not a legal way to avoid taxes. Taxes for US citizens and many citizens of other western countries are paid on worldwide income. However, an offshore corporation can help to preserve assets and privacy while remaining tax compliant.Why Nevis?Nevis offers a stable government and a stable economic environment with strong and safe banks. Nevis also has an impressive communication infrastructure which makes it an attractive offshore home for your business or investments. Nevis corporate laws are based on British and United States legal concepts and written in English, a big benefit for American and British businessmen. These factors alone make Nevis worth looking into as an offshore home for your corporation but even more attractive are the provisions the Nevis government has written into the Nevis Business Corporation Ordinance. The ordinance provides Nevis corporations:• Are exempt from Nevis taxes• Are protected by strict privacy laws• Assets are protected at a level that is better than many other countries offering offshore business opportunities• Do not have to disclose corporate owners, officers, or directors in any public record• Corporate officers or directors may conduct business without a meeting if they are in unanimous agreement• Do not have to file annual corporate financial returns• May locate corporate offices and records anywhere in the world• May create corporate control without ownership• May choose officers or directors that are not citizens of Nevis• May issue bearer sharesNevis also offers similar benefits to Limited Liability Corporations (LLCs). Nevis’ LLC’s offer superior asset protection including a provision providing if a member of an LLC is sued and a judgment results, the Nevis law protects the LLC and assets held by the LLC from seizure.It is also not insignificant that the Nevis corporate laws make it extremely easy to create an offshore Nevis corporation quickly and inexpensively compared to other popular offshore locations.