There are many misconceptions about Anonymous LLC’s on the Internet. Don’t let misinformation mislead you into doing something wrong or illegal when trying to form an Anonymous LLC.
Are you thinking about setting up or forming a Private or Anonymous LLC? Such an organizational structure provides many benefits, but there is so much misinformation on the Internet, it’s important you understand the limitations and misconceptions about Anonymous LLC’s before getting started.
L4SB wrote the book on Anonymous LLC’s, and thousands of clients rely on us to protect their anonymity — they are former abuse victims, run sensitive businesses, own and/or rent property, and much more. As a law firm, our Anonymous LLC’s and LLC Formations are Lawyer Defined. This means L4SB sells relationships, while the “other guys” sell formations.
What is an Anonymous LLC? An Anonymous LLC is a private LLC where ownership information is not disclosed to the Secretary of State. It is not a mechanism to avoid paying taxes or move money around anonymously.
(1) You can be anonymous in Nevada
Did you read an article that says Nevada (NV) is one of the states that permits you to operate privately or anonymously? That’s a (very) old article. Check the date.
This is one of the most frequent misconceptions about anonymous LLC’s out there. Nevada is not an anonymous state.
While it’s true that Nevada does not require disclosure information on the formation documents (i.e. Articles of Organization), Nevada requires an “Initial List,” due shortly after the company is formed. This initial list must include owners (called Members), which eliminates the possibility of anonymity in the State of Nevada. And after the initial list, you’ll need to submit annual reports every year that indicates ownership information.
(2) Nominee Services are effective at anonymity
While this is a common mechanism provided by substandard providers, the truth is “Nominee Services” can get you into trouble.
Everyone seems to have their own spin on “Nominee Services,” but our competition tries to take advantage of the fact that no state verifies formation documents when submitted.
Most “Nominee Services” use some form of a bait-and-switch tactic with the Secretary of State, where they use some random name on the formation documents, form the company, and then give you private documents purporting to change the ownership or management of the company. These “Nominee Services” may achieve the desired result — forming a company without your name on it — but they introduce fraud in the filing and almost all states have laws requiring you to submit (and maintain) accurate information.
How can this get you into trouble? Anonymous LLC’s are supposed to shield you from liability when conducting business, and allow you to operating a company anonymously. By fraudulently filing your Anonymous LLC using a “Nominee Service,” you’re permitting a plaintiff’s attorney (i.e. someone suing you) to argue you have a fraudulent LLC, and then use that fact to attempt to pierce the corporate veil, go after you personally for the debts, liability and obligations of the company, and argue “willfulness” in a tort claim (which could permit special damages).
Additionally, we’ve seen title companies and other organizations demand the original name as listed in the paperwork on file with the Secretary of State to sign some sort of authorization. This can problematic when dealing with real estate or other hard assets, and your “Nominee” is no where to be found.
If you’re thinking of utilizing the services of an Internet company that says they can help you achieve anonymity by “Nominee Services,” run far and run fast.
(3) Anonymous LLC’s protect you from lawsuits
The power of the Court is tantamount, and just because someone cannot identify ownership information of an Anonymous LLC, doesn’t mean an Anonymous LLC is immune from a lawsuit.
Once a lawsuit is filed against an Anonymous LLC, expect the owners to be named as defendants as “John or Jane Doe.” If you ignore the lawsuit, you risk a “default judgement,” which means you give the plaintiff (i.e. the one suing you and/or your Anonymous LLC) a judgement against you and the power of the court to come and collect against not just your Anonymous LLC, but you personally. Expect a default judgement to be significantly more than the original disputed amount, to account for attorneys fees, maximum claims (i.e. you didn’t defend yourself to tell the court the plaintiff was outrageously exaggerating what is owed), penalties and interest.
If the plaintiff knows anyone you’ve done business with (i.e. banks, credit card companies, domain name providers, registered agents, organizers and incorporators, etc), they can subpoena such organizations to identify the owners of an Anonymous LLC. Armed with that information, they can then enforce default judgements against you personally, even years after you’ve closed the company.
(4) You don’t need a lawyer to create an Anonymous LLC
If you do hire someone to help setup your Anonymous LLC, unless that someone is an attorney or law firm, that someone simple doesn’t have the skills, experience or capabilities to maximize anonymity for you.
First, if someone is trying to identify ownership information, they can try to subpoena the organizer or incorporator (i.e. the one listed as creating the Anonymous LLC with the Secretary of State). Unless that someone is an attorney or lawyer, they cannot exert attorney-client confidentiality or privilege. Almost all companies (except for lawyers and law firms) will automatically respond to a court order or subpoena, even if it’s invalid or without authority. Attorneys and lawyers, by contrast, have to evaluate all court orders and subpoenas, and only respond when valid.
Second, most courts want to avoid sending subpoenas and court orders to attorneys and law firms. It can create problems later, and so is generally avoided except in special circumstances. How many subpoenas and court orders has L4SB received over the years? Hundreds. How many has it responded to? Less than a dozen. How many has it had to actually give out ownership information? One — in over 10 years.
(5) Anonymous LLC’s are anonymous to banks and the IRS
This is one of the biggest misconceptions about Anonymous LLC’s, and you cannot be anonymous to the banks and/or the IRS.
If you’re trying to hide and move money around, Anonymous LLC’s are not the right mechanism for you. An Anonymous LLC cannot open a bank account without a FEIN. You cannot obtain a FEIN, without disclosing beneficial ownership information to the IRS. Banks are required to “Know Their Customers,” by federal law, and therefore will require disclosure of ownership information.
Why?
Think of terrorism, money laundering, tax fraud and more. All these criminal activities are carefully limited and controlled, and one way to do this is for banks to “Know Their Customers.”
Fortunately, the banks and the IRS keep this information confidential.
(6) You can pick any state you want, to form an Anonymous LLC
Chalk this up as yet another one of the misconceptions about Anonymous LLC’s.
Ask yourself these two questions: First, how is your company transacting business? And second, where is your company transacting business?
“Transacting business” means:
- Where are most of your customers located?
- What states contain 20% or more of your customers?
- Do you derive 20% or more of your revenue from a specific state?
- Where do you have W2-based employees, including yourself?
- Where do you have a “base of operations,” or are otherwise conducting business regularly?
- Are you in a state that says you’re doing business in the state, simply because you’re a resident of the state?
Now, ask yourself which states you’re “Transacting Business” as defined above. In most instances, this will be at least your state of residence. Doesn’t matter if you’re selling stuff online. You need to look past where you’re selling or finding customers, and look at what you’re doing for those customers, how, and where they are located.
If you are located in an Anonymous state (find out, by going here), you should form in your home state.
If you are located in California, you should form an Anonymous LLC in New Mexico as a Management Company, which manages a regular LLC in California as your Operating Company (and you will directly own the regular LLC in California).
If you are located in any other state, you should form an Anonymous LLC as a parent Holding Company, which owns a regular LLC in your home state as the Operating Company. You will own the parent Holding Company, not the Operating Company.
Such an approach not only helps you operate legally in the states you are “transacting business,” it sets your company up properly so that if you start growing, someone needs local proof of business (i.e. a local business license, a utility bill, etc), you’re setup properly to do these things without disclosing anonymity.
Law 4 Small Business (L4SB). A little law now can save a lot later. A Slingshot, LLC, company.