An LLC Versus A Corporation For Asset Protection

A reader wrote in over the weekend to enlighten me on the costs of LLCs. Specifically, he wanted to let me know that setting up an LLC in New Mexico is much cheaper than the range of costs I referenced for setting up LLCs in the offshore jurisdictions I wrote about recently.

I’m afraid this reader is confused. Either he thinks that New Mexico is a foreign country (offshore from the United States) or he doesn’t understand that I was speaking about the costs of offshore LLCs (as that’s my beat here).

Don’t dismiss the possibility of the New Mexico confusion. Over the years I’ve received e-mails from many people asking what type of visa they’d need to go to New Mexico. Other geographically challenged readers have written in with questions including “I can’t find Ecuador on a map…where is it in Central America?” and “What’s the best way to drive to the Bahamas?”

More likely, though, the reader was confused about the advantages and differences of an offshore versus on onshore LLC. Certainly, if you’re doing business or investing in the United States, you want to use an onshore (assuming you’re an American living in the States) LLC and seek out the least expensive option. I’ve used Nevada LLCs for business ventures in the past thanks to their no-tax position for entities not doing business in the state. Wyoming, too, has attractive LLC legislation. However, why would you use an onshore LLC for offshore investment? That’d eliminate the asset protection that should be your overriding objective.

Another reader wrote in following last week’s dispatch to share references he found indicating that an LLC must have a business purpose if it is to provide limited liability protection. Again, this reader is thinking of an onshore LLC meaning that, again, he is missing the point.

You go offshore to protect your assets. There are other benefits, advantages, and motivations, of course, but asset protection is a key part of the agenda here.

You can’t protect U.S. assets simply by placing them in an offshore entity. While the offshore entity may give you a layer of protection, it isn’t going to eliminate the possibility of your asset being seized by a creditor or the government or whoever. If it’s physically present in the States, it could be scooped up by the U.S. courts.

The best strategy is using an offshore entity to hold offshore assets. If neither the assets nor the owner (the offshore entity) are present in the jurisdiction where the defendant (that’s you) is being sued, then the chance of the plaintiff collecting on a verdict in his favor is very small. Most attorneys working on a contingency basis will walk away from a suit when they find out that the only assets of consequence at stake are outside the jurisdiction of the court where the suit is being filed.

Lief Simon

“Lief, is there an exception to the US$2,000/month income requirement in Belize for a retired lawyer with US$1,300/month Social Security income?”

–R.R. on Facebook

Belize sometimes does allow people to use other income to top up a pension to reach the US$2,000 mark.

If you don’t have at least US$2,000 a month of total guaranteed income, you could still establish residency in Belize, just not through the QRP program. You could simply move to Belize and renew your tourist visa every month for a year. This results in legal residency with no minimum income requirement.