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Beware of Nevada LLCs

            For the better part of the last two decades, there has been a lot of “asset protection” information circulating on the internet and in seminars about the significant value of Nevada and Wyoming LLCs.  In the last few years, however, many seasoned practitioners have come to realize that a lot of Nevada LLCs are being used for dubious matters and are being grossly oversold.  There are now some leading asset protection experts who will tell you to be cautious whenever you encounter a Nevada LLC.

            I have seen out-of-state LLCs be sued in various courts in Ohio for breach of contract wherein the contract between the Ohio plaintiff and the out-of-state LLC says that out-of-state law would apply.  Judges in Ohio have said that the case was filed in Ohio, it is in our courtrooms, and we are going to handle it here and apply Ohio law.  Now, if you want to spend a couple of years waiting for the case to work its way through the trial level to get an appealable order to take to the Court of Appeals, and you want to spend another couple of years and a quarter of a million dollars in legal fees and other costs, you can appeal it and see if you can get the Court of Appeals to agree that it should have been interpreted according to the laws of the other state.  Not many people have the time and resources for that kind of fight.

            Other asset protection experts are now warning about the amount of scrutiny being applied to Nevada and Wyoming LLCs because of the bad track record many operators of those LLCs have.  I remember a situation with an extremely profitable Wyoming LLC that had just made the Inc. 500 list.  The managing member of that LLC went to a local bank seeking a business line of credit.  In spite of being a profitable, fast-growing company, the bank turned them down because it was an out-of-state LLC.  Nowhere in any of the “asset protection” promotional literature about the features and benefits of Nevada and Wyoming LLCs was that problem ever disclosed.

            The best type of LLC is the one you will correctly operate and maintain.  Since most states have updated their LLC laws, particularly regarding charging order protection, the past “magic” that Nevada and Wyoming offered is pretty much commonplace.  Since some states, like Ohio, collect far less data during the process of filing Articles of Organization than do Wyoming and Nevada, the risk of information being exposed in the event of a data breach is far less in states that don’t collect as much information.

            I hope this gives you something to think about.  If you have some personal, first-hand experience that runs counter to what I have offered (not theories spouted by someone at a seminar), I would be happy to hear about it.

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