Delaware LLC Members Anonymity: Everything You Need to Know
Delaware LLC members anonymity offers beneficial legislation for LLC members who wish to remain anonymous, but it doesn't guarantee a member privacy protection.3 min read
2. Delaware State Business Regulation Advantages
3. Delaware State Business Regulation Disadvantages
4. Delaware State Corporate Disclosure Requirements
Updated November 18, 2020:
Delaware LLC members anonymity offers beneficial legislation for LLC members who wish to remain anonymous, although the regulations are not guaranteed to protect member privacy.
To understand the context of anonymity within a Delaware LLC, one must first understand the structure and ownership of LLCs (limited liability companies). A general partnership is a business structure where one or more individuals have liability. On the other hand, a limited partnership exists when limited partners have limited management roles and also have limited liability. An LLC is a hybrid structure. It retains some of the features of a partnership, largely for income tax reasons.
LLC Ownership and Anonymity
An LLC's Operating Agreement establishes ownership. This agreement is a private contract and is not usually available to the public. Although it's typically established by default, ownership anonymity within an LLC is not guaranteed. Legal processes, including litigation and government investigations, can reveal the ownership of the company.
LLCs are not usually formed with the purpose of preserving owner anonymity. There are several reasons why an LLC may be required to disclose member information. For example, registering the company in another state in order to conduct business there and IRS reporting requirements are both causes for disclosure.
Delaware State Business Regulation Advantages
Delaware State laws are known for being favorable to businesses and there are significant advantages to conducting business within the state:
- A distinct court entity called the Court of Chancery determines litigation related to business matters. Experienced business lawyers and litigators work to resolve business disputes. Instead of a jury, judges decide the outcome.
- Delaware is incredibly favorable to businesses when it comes to taxes. Companies that conduct business outside the state are not required to pay corporate taxes.
- Delaware tends to incorporate businesses rapidly compared to other states.
- Whether at the time of formation or anytime afterward, the Delaware Division of Corporations does not require an LLC to publicly disclose its members or managers. This provides some privacy, but keep in mind that complete anonymity is never absolutely certain.
While anonymity may be a reason some LLC owners and members choose to form an LLC in Delaware, most of the time people form an LLC for the usual reasons: to maintain limited owner liability and to provide a business structure for managing and distributing profits.
Delaware State Business Regulation Disadvantages
One of the biggest complaints when it comes to Delaware State business regulations is that state law enables the actual owners of a company to conduct business behind Delaware's presumed anonymity without needing to reveal their identities. With LLCs, and especially Delaware LLCs, public information about the actual owners may be unavailable. Money laundering and wire transfers are federal government concerns.
Delaware's Court of Chancery is concerned with the use of the court for criminal activities. Even if a plaintiff does not have any illicit motives, the court may not use its powers if there exists "potential for untoward results" (See Klamka v. OneSource Technologies, 2008 WL 5330541).
Delaware State Corporate Disclosure Requirements
Delaware's General Corporation Law, Section 102 declares that every certificate of incorporation must be signed by an incorporator, who must include his or her mailing address. Should the incorporator's powers cease upon the filing of the certificate, then the certificate must list the name and mailing address of the directors who are active until the first annual meeting. The State of Delaware also requires a registered agent, whose name and address must also be included within the certificate of incorporation.
According to 8 Del. C. §502(a)(4), the annual report must include information about all of the directors and at least one of the company officers. It must be signed under oath. If the report fails to include this information, the Delaware Secretary of State will not grant a certificate of good standing. Similar corporate disclosure requirements are found within the laws of several other states. Forms are available on state governmental websites for New York, Oregon, California, Illinois, Maine, Pennsylvania, Massachusetts, and Wyoming, which require essentially the same disclosures. Many states allow corporate formation online by the person who wishes to incorporate.
On the other hand, a registered agent located in Delaware might have 50,000 LLCs associated with it. A company can simply name the registered agent as the contact person for the LLC. Thus, if your LLC wants to stay as anonymous as possible, Delaware is a great place to do so.
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