In the current boom of new businesses, many entrepreneurs are concerned about maintaining their privacy while pursuing their ambitions. A key tool in this regard is through forming an anonymous limited liability company, or LLC.
What is an LLC?
An LLC is one of the most popular types of business structures. Unlike the other business structures, an LLC is permitted under state statute and not federal law. So, the regulations governing LLCs vary from state to state. So, you should seek state-specific regulations from the office of the secretary of the state where you are registering your business.
LLCs are popular with entrepreneurs because they combine many important features of corporations and partnerships. In addition, as the name suggests, they limit the personal liability of the company’s owners, who are known as members. So, in the event that your business fails, or is subject to a lawsuit, your personal assets will, subject to conditions, not come under attack.
An LLC may be a single-member or multi-member LLC. There are no restrictions on the number of members an LLC may have, or the kinds of members an LLC can have. So, an individual, corporation, foreign entities, or another LLC can be an LLC’s members. Typically, when an LLC has a large number of members, it will only be run by some of those members. There are, then, member-managed LLCs and manager-managed LLCs.
Certain categories of business, such as banks and insurance companies, cannot organize themselves as LLCs. In addition, professionally licensed individuals, such as doctors, accountants, and lawyers, cannot operate as LLCs, but must instead organize themselves under a professional LLC, or PLLC.
Foreign LLCs have their own regulations.
Again, you want to check with the state to see what precise regulations govern your line of work.
LLCs are pass-through entities, which means that any profits or losses it earns or incurs are passed through to its members. These members will pay income tax according to their tax bracket. Members are considered self-employed and have to make contributions to Medicare and Social Security. The LLC itself does not face any corporate taxes.
In many states, an LLC’s life can be limited, such that if a member leaves, or a new member joins, it is required to dissolve and be re-formed to reflect the new membership. This is true if there is no existing operating agreement stipulating how ownership of the LLC will be managed.
LLCs are valuable tools if you are in a medium to high risk business, or have significant resources you want to protect, or the owners of the business believe they can pay a lower income tax than corporate tax rate.
So How Do I Make My LLC Anonymous?
An LLC’s information is public by default. The law requires an LLC to make publicly known who its directors and officers are, who its registered agent is, and, in some cases, who the managers of the LLC are.
Domicile Your LLC in the Right State
We have already shown that, given the divergence in regulations, it’s important to think carefully about the state you want your LLC to be domiciled in. In order to anonymize an LLC, you first have to set up your LLC in a state whose laws make that possible. The best states to do this are Delaware, New Mexico, Nevada and Wyoming.
In these states, it’s possible to keep your identity and other personal information private. The details of your registered agent are public and cannot be hidden because a registered agent has to be known so that parties can make service of process such as giving notices of lawsuit to your business.
In these four states, you will be able to register an LLC without giving any private information on the registration forms.
One of the most popular states to domicile your business in is Delaware. Indeed, Delaware is the gold standard for business formation. With a population of over 973,000 people, Delaware has more registered businesses than residents. According to Delaware’s Division of Corporations, the state is home to a million businesses, including more than 66% of the Fortune 500. You can learn more about forming an LLC in Delaware here. Delaware is also one of the best states to anonymize an LLC.
Delaware is the preferred state for most businesses because of its low tax regime (a $300 annual franchise tax) and the great business environment the state has created.
If you want to anonymize your LLC in Delaware, all you have to do is have a nominee named on the registration documents, who knows you and the other members. In order to find out who the real members are, that person will have to secure a subpoena. There is no legal requirement for the LLCs owners to be made publicly known.
New Mexico, Wyoming and Nevada
New Mexico allows an LLC to be established without any of the members’ names being disclosed. In terms of sheer privacy, New Mexico is the strongest state. Wyoming has a combination of low taxes and low filing fees and also allows you to have a nominee in place of the name of the real members. Nevada also enjoys very low taxes.
Benefits of an Anonymous LLC
An anonymous LLC provides you with the confidentiality you are seeking. This is important not just for high net-worth individuals, but for anyone who is concerned about knowledge of their personal assets becoming widely known. This is true even from a capital raising perspective: you may be more likely to get certain members if they feel their identity is protected.
Some people have a very high profile and do not want the scrutiny that comes with having their personal affairs publicly known. Others have suffered some kind of abuse and are also sensitive about protecting their privacy.
Given we are in the era of the Great Resignation, many workers who are still employed but are starting a business on the side, use anonymous LLCs to protect their identity and avoid having their employer find out what they are doing.