The Importance of Competent LLC Management

Since the limited liability company first came into being in the State of Wyoming in the late 1970s, the LLC has become ubiquitous throughout the United States and major offshore business centers.  The flexibility that LLCs offer, similar to partnerships, makes them convenient for conducting business with minimal formalities.  Also, the formidable barriers to liability make them just as effective as more traditional limited liability enterprises, such as corporations and international business companies.

Perhaps the greatest benefit of limited liability companies over their incorporated brethren is the protection afforded members of an LLC from their creditors.  Generally, creditors of an LLC member may not interfere with the management of an LLC or compel a distribution of LLC property to a debtor member for collection.  In many jurisdictions, creditors of an LLC member are further limited to a charging order as the exclusive remedy for collecting against a debtor member’s interest.  Under a charging, the creditor may only collect if and when distributions are actually made to the debtor member.  

As a consequence of the significant protections offered by an LLC, the most prevalent form of LLC established worldwide is the manager-managed LLC.  A manager-managed LLC offers the distinct benefit of severing ownership of the LLC from management.  Depending on the business arrangement, someone may serve exclusively as a member of the LLC and have no participation in management.  Likewise, someone may be a manager of the LLC without having any ownership interest whatsoever.

            Comparison to Self-Settled Spendthrift Trusts

The self-settled spendthrift trust has become the prevalent planning tool for asset protection planning. The primary reason for its use is a complete severance of ownership from management afforded under the trust agreement.  The trustee of the trust is able to manage trust assets free of creditor interference.  Meanwhile, the trust beneficiaries, among whom may be a debtor facing collection action, beneficially own the trust assets but are powerless to demand that trust assets be distributed under circumstances that would permit a creditor to interdict the distribution. 

Asset protection lawyers frequently recommend the use of LLCs for their clients based on this same concept of complete severance of ownership from management.  The LLC manager may function much like the trustee of a trust, managing the LLC’s assets from an asset protective jurisdiction.  At the same time, the LLC members benefit from ownership without fear that a single member’s creditor may interfere with the LLC’s business or force a distribution of LLC assets for collection purposes.  

Structured properly, an LLC can perform many of the same functions of a self-settled spendthrift trust, but with significant advantages.  LLCs are typically far simpler and more cost-effective to establish, even in popular offshore asset protection jurisdictions.  Moreover, LLCs are largely unregulated in the United States, and most offshore jurisdictions do not regulate LLCs to the same extent that they do trusts.  Fewer regulations often means that the cost of conducting transactions in the LLC format is less expensive than with a trust.

In some instances, LLCs may offer greater protections than a trust, particularly if a member contributing assets to the LLC is experiencing creditor issues.  LLCs offer certain distinct advantages, such as a business purpose for asset contributions as well as tax reporting simplicity, that trusts cannot offer.

            LLC Management Services:  The Lighthouse Advantage

When considering the use of a manager-managed LLC, careful attention must be paid to the selection of a competent LLC manager.  While there are numerous trustee companies available for hire in the United States and overseas, professional LLC management companies are almost non-existent.

Nearly twenty years ago, the management team at Lighthouse Trust realized the tremendous potential offered by manager-managed LLCs for their clients.  In 2011, we established Lighthouse Management Services, LLC to provide competent management and administrative support services for LLCs in the United States and offshore. 

Members of our management team are the principal or contributing authors to LLC legislation in a number of US states as well as key offshore business centers.  We were the first firm to integrate the role an LLC protector in planning, enabling clients to embed fundamental protections in their LLC operating agreements when engaging a professional LLC manager.

Lighthouse has been at the forefront of LLC planning.  As much as we are recognized as one of the most experienced firms in asset protection, we offer unmatched experience in LLC management.

Whether you are looking to retain a professional LLC manager or administrative support for your own management efforts, Lighthouse Management Services offers a complete suite of services.  We advise on plan design and operating agreement terms, including management and membership structures.  Our ongoing support services include state and federal compliance, accounting, banking, documentation of manager and member meetings, member communications, and due diligence/KYC/AML compliance.

If you are considering the use of an LLC in your business or estate planning, consider the Lighthouse advantage and drop us a line.  We look forward to answering your questions and helping you to achieve certainty in planning.