The Limited Liability Company, or LLC, traces its roots back to the German law of 1892 authorizing Gesellschaft mit beschrankter Haftung, or GmbH.  Once established in Germany, other countries from all around the world followed suit.  In 1977, Wyoming became the first US state to enact a true LLC act modeled closely after the 1892 German GmbH code.  Today, LLC’s, or the local variation thereof, are the most widely used form of business ownership around the world.  They are also the most widely misused.

Most entrepreneurs take great care in starting their company, but forget about the dual nature of asset protection and therefore neglect to properly structure their LLC.  Not only do you want to protect your personal assets from the activity of the business, you also want to protect the business, and thus your income, from your personal activities.

This is where a properly structured LLC comes into play.  If you are registering an LLC in the US to conduct business and/or to own assets there are the 3 main considerations;

• Register in a state that only allows creditors a charging order as the sole remedy by statute
• Register in a state that allows anonymous managers, or at least use a nominee manager
• Make sure you have a rock solid operating agreement

Step one is to register the LLC in a state where a charging order by statute is the sole remedy for a creditor to collect distributions from an LLC.   There are several states that only allow creditors a charging order as the sole remedy, but not all of those states are a good choice due to other factors like excise taxes or capital values tax.  Due to the nature of the charging order (in the proper state), creditors are only entitled to distributions, but cannot force a distribution, take ownership of assets, foreclose on business assets, or be granted membership interest in the LLC.  This means if your assets are held in a properly structured LLC, your creditor can only gain rights to your distributions, but as manager, you can elect to withhold distributions to member(s) leaving your creditor with a tax liability.  In some states, like CA, creditors can foreclose on business assets held in an LLC or even be granted a membership interest allowing them to gain control over the assets.  You don’t want to register in those states.

Step two should be to register your LLC in a state that allows anonymous managers, or at least utilize a nominee manager.  In most cases this veil of privacy is enough to keep the wolves at bay.  Imagine getting into a car crash.  Nowadays the first reaction of the ‘victim’ is the grab their neck or back and claim an injury.  Of course their attorney will run a public record search for your assets to determine his ‘payday’.  If there is no fat piggy bank to smash, in most cases he will not pursue you beyond the limits of your insurance.  By simply making your assets invisible to public record searches, this puts up a significant roadblock. 

And step three is to make sure your operating agreement is rock solid.  Last week I discussed the operating agreement and what constitutes a good one (if you didn’t receive last week’s newsletter, feel free to send an email requesting the April 22 issue).  I can’t tell you how many entrepreneurs that cross my path who either have no operating agreement all, or the one they do have is so inadequate, they might as well not have one.  At least 90% of the operating agreements we review for clients are completely useless.  Most are 7-10 page boilerplate agreements that offer no asset protection whatsoever.  That is just not enough space to spell out a contractual obligation.  Ours is approximately 70 pages.  The operating agreement is the contract between you and your business and is the first thing the court requires for guidance in dealing with your assets.  In the absence of a good contract, you are at the mercy of the court should you find yourself to be a defendant. 

With proper asset protection planning, the LLC can be a very useful tool in minimizing your risk.  There are many creative ways to use LLC’s for structuring your assets like using a Nevis LLC to own your domestic LLC thereby giving you an additional layer of protection and making your assets completely invisible.  You can also use a combination of LLC’s to segregate business assets or strip equity from real estate using liens that you control.  If you have any questions or would like to schedule your free 30 minute consultation, feel free to contact me either by email or phone.

Real estate and precious metals are the exception here. By holding real estate or precious metals outside of the US, this gives you significant asset protection from creditors and government intervention.   To be clear though, for US citizens or residents, all worldwide income must be reported and is taxable regardless of where you live.  So if you own a beach house on the coast of Spain and rent it out for holiday, you must report the income. 

I have been recently acquainted with a man in Costa Rica who is developing a very interesting wellness resort and spa on 83 acres of forest surrounded by protected areas and a national park.  He has already built several residences, a wellness spa, a bed and breakfast, and will soon be opening several restaurants and a medical facility.  This is a great opportunity for someone looking to retire, have a second home, go on a vacation, or take advantage of investment opportunities.  Hugo, the owner, is looking for business partners to develop additional amenities like a hotel and restaurants.  With certain qualifications, Hugo has even offered to pay for your trip to check the place out.

At this point I have not visited Hugo’s place in Costa Rica.  I have read though his investment offering and I have looked extensively at his business plan.  It is very appealing.  I will be making a trip there later this year to put my boots on the ground.  I would encourage any of you that may have some interest to at least check it out.  Do your due diligence.  Hugo is even willing to pay for your  plane ticket.

Buying real estate outside of the US is a great way to hold assets and minimize your US holdings while diversifying at the same time.  As stated in previous newsletters, this is not for everyone.  If you are a small investor or business owner and uncomfortable with offshore holdings, you should just disregard this.  But for many of you reading this, you already have a vacation house, or are considering buying one, liquid investments like securities, business holdings, and are interested in ways to diversify your holdings while giving you options.  You are the ones who would benefit.

If you want to contact Hugo, please send me an email and I will forward you his contact details.  If you have further questions or would like to schedule a free 30 minute consultation, you can contact me by phone or email.  Live well.

Hugo is an interesting guy.  He holds a BS in Computer Science, a JD in General Law, an LLM in International Taxation, a Doctorate in Taxation, a Doctorate in Naturopathy, former CFP, and has traveled to over 100 countries.  Needless to say, he is experienced in international business. 

Recently I heard from Hugo.  Hugo is developing a Wellness Resort and Spa in Costa Rica near the Pan American Highway.  It is surrounded by huge national park and a wildlife refuge.  It is a very interesting concept with medical facilities, spa, hotel, bed and breakfast, and several restaurants.  And right now, Hugo is selling ten of these beautiful lakefront houses for $40,000.

To put the icing on the cake, Hugo has arranged easy, low cost financing for those able to put 30% down.  There will also be property management available for those interested in using this as an income property.  For the entrepreneurs, Hugo is looking for partners for the medical ventures and additional restaurants.  For anyone interested in an absolute bargain in a beautiful location, this deserves serious consideration. 

If you are interested, please send me an email and I will connect you directly with Hugo.  Live well.

But if you were already considering buying a vacation property, considering property values all over the world are down and US citizens are likely to see more agressive currency controls, now is the perfect opportunity to buy that vacation house outside of the US. 

I recently made the acquaintence of a man in Costa Rica that is building a very interesting health and wellness resort.  He has already built and sold several houses and has many lots already sold.  He has also built a bed and breakfast and a spa.  He will soon be adding a medical facility, a hotel, and several restaurants.  For qualfied parties, he will even pay for your airfare to come visit.  He is looking for investors who want to build a house, run a hotel, or doctors who can perform plastic surgery.

It’s a great opportunity for those interested in retirement, a second home, a business oppoortunity or just a vacation.  I personally have not toured this property  yet, but I intend to make a trip there later this year to put boots on the ground.  I have thoroughly reviewed his investment offerings and his business plan and it has me intrigued.  I cannot post his contact info here, but if you are interested, send me an email and I will connect you with Hugo. 

It’s certainly worth checking out.  I know I am.