Confidential LLCs: Structuring Your Business to Protect Privacy

The purpose of structuring your business confidentially is to shield the identity of company members (owners) or managers while simultaneously protecting them from being personally liable for business debts. Public databases, including a state’s Secretary of State website, allow others to know the name and address of your business. In most cases, when you form a new business entity, you have to file formation documents with the state government. The information eventually becomes part of the public record, and anyone can access it. In contrast, confidential LLCs do not require the identity of the owners, managers, and employees to be shared. There are four “Anonymous LLC” states that allow you to form confidential LLCs. Those four states are Delaware, Nevada, New Mexico, and Wyoming. You can form an LLC in a state you don’t live in, so these private LLC states can be utilized by anyone, if organized and managed properly. The goal is to find the state that works best for your needs. This blog post will break down the pros and cons of setting up a confidential LLC so that you know what factors to consider for your business.

Pros of Forming a Confidential LLC

As previously mentioned, people choose to form confidential LLCs because they care about privacy and don’t want their information to be available to the public. However, there are more pros than just this one.

• Forming a confidential LLC keeps the information of owners, managers, and employees private;

• A confidential LLC makes it easier to keep safe from potentially harmful individuals such as stalkers, for example;

• The private life of the owner or employees will not be affected if there is any bad news or fallout from the business;

• Partners can join LLC at different stages;

• You can do business outside the state where the confidential LLC has been formed; and

• Confidential LLCs offer the same advantages as regular LLCs (i.e., tax advantages and limited liability protection).

Cons of Forming a Confidential LLC

While there are many advantages of forming a confidential LLC, there are also some cons that business owners should to be aware of.

• The anonymity provided by confidential LLCs does not include the IRS or the bank. Business owners still need to provide their full information, but those are not public record; and

• In case the confidential LLC is subpoenaed, the personal information of the business owner can be exposed during litigation.

What is the Best State to Form a Confidential LLC?

Filing the private LLC in New Mexico is generally the cheapest and most efficient. The corporate tax rate is irrelevant for most purposes because a private LLC is a “pass-through” entity. This means that the profits from the company “pass-through” the business to the individual members. The New Mexico LLC does not itself pay any taxes. Members would pay taxes on their individual tax return and since the member is a non-resident, the New Mexico LLC will not pay any taxes within the state.

Next, moving forward with the analysis of the annual requirements and filing fee differentials between states, the most crucial element are the annual renewals. Most states in the US require an annual report of business activities; some states even require a quarterly report. At those renewals you pay an annual fee, either based on the amount of sales that happen in the state or a flat fee. In New Mexico, neither is a requirement. There is no reporting requirement within the state and you are not required to pay an annual fee. Also, New Mexico is one of the few states in the country which does not require the name of a company’s manager to be included as part of the articles of organization when they are filed. That means your name and address do not become part of the public record as they do in other states. Lastly, you can do business outside of New Mexico; the rules of the state allow you to do business in your home state, or any other, without additional filing requirements.

Delaware is another state that can be considered for your confidential LLC. Delaware has always had a reputation for being business friendly and is the only one that has the Court of Chancery, which is dedicated to business matters. Another significant advantage of choosing Delaware as the state of your confident LLC is that you are not required to pay corporate income tax. Depending on the size of your business, this advantage might help you save a fortune. However, Delaware does require a yearly $300 franchise tax.

If you are not concerned about choosing the state that offers the best financial advantages and are only interested in privacy, New Mexico is the best option. New Mexico doesn’t require LLCs to disclose any individual names to the state. The other three states (Delaware, Nevada, and Wyoming) require the information of the owner to be registered, but it does not become public. New Mexico doesn’t require any annual reports, fees, or taxes. If you want to protect your privacy and keep your company ownership information out of the public record, forming an anonymous LLC will enable you to guard your personal information while shielding your investments from creditors and lawsuits.

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