Which state is best for Anonymous LLC?
If only it were possible to answer the question, which state is best for Anonymous LLC, with a quick answer to a particular state.
Most information on the Internet will tell you about the states that permit Anonymity, and then constrain the answer to those states. But, the answer is a bit more complicated, and which state is best for Anonymous LLC will depend on what you’re doing with the LLC and where you transact business.
Where you transact business will help decide which state is best
It is required — by law — to register a company in the state (or states) where it is “transacting business”. For most people, this means registering in the state where you are a resident, regardless of where your customers are (i.e. maybe another state) or how you obtain those customers (i.e. from the Internet).
Ask yourself these questions, to help you determine what state you are “transacting business”:
- Is there a specific state that is generating 20% or more of my revenue?
- Are 20% or more of my customers located in a particular state?
- Do I have a W-2 employees (including myself), and what states are they located in?
- Where is my “base of operations” located?
- What state am I regularly conducting business, maybe in support of my operations, handling inventory, or performing services?
- Does your state of residence have specific rules about “doing business in” for its residence? For example, California has certain thresholds for revenue or money paid to California residents, that will cause a company located outside of California to have to register in California.
When thinking about these questions, try to rub the crystal ball and ask yourself what the answer could be 2 or 3 years from now — not when you’re first forming your company. After all, you want to setup the best corporate structure for what you think you’ll need in the years to come. What you need now — when you first start out — is almost (but not quite) irrelevant.
For 90% of you reading this article, your state of residence is going to be one of the states you’ve identified. Otherwise, if you’ve identified a different state, that’s okay but at least you know what state that is.
Next question: Are you “transacting business” in just one state or in multiple states? If you are “transacting business” in multiple states, you will need the parent-child setup described in Approach #3 below.
If you are “transacting business” in just one state, whether your state of residence or somewhere else, here’s what you need:
- Approach #1: You live in an anonymous state (AL, CO, DE, GA, IA, MS, NM, OH, VA or WY)
As of July 2022, these states permit anonymous filings for LLC’s: Alabama (AL), Colorado (CO), Delaware (DE), Georgia (GA), Iowa (IA), Missouri (MS), New Mexico (NM), Ohio (OH), Virginia (VA), and Wyoming (WY). If your identified state, where you are transacting business, is one of these states, then you should form your Anonymous LLC in this state, and use it as your Operating Company. - Approach #2: You live in California (CA)
If you live in California, you want to form two companies: A management company in New Mexico (NM) and an Operating Company in California (CA). You will own both companies. The management company in New Mexico will be an Anonymous LLC located in NM. The Operating Company in California will be the company you conduct business, and it will be managed by the New Mexico (NM) company. To make this work, the NM company doesn’t move or touch money. It needs no FEIN, and no bank account. Why do we recommend New Mexico? Because it’s the least expensive to setup and operate. - Approach #3: You live somewhere else
For all other states, you want to form a parent Anonymous LLC as a holding company, that will own a regular LLC in the state you’ve identified as your Operating Company. You will own the parent company, not the Operating Company. The parent holding company will own the Operating Company. This approach is needed for all states not listed above, or if you’re going to be transacting business in more than one state? Why? Because you can foreign file the Operating Company in other states, and still preserve your anonymity due to the parent Anonymous LLC as the holding company.
The above applies for anonymous LLC’s that are “transacting business.” Suppose you’re not transacting business at all, and instead simply holding assets or property?
What you do with the LLC, will also help determine which state is best for Anonymous LLC
If you want a LLC to simply hold property or assets, and not conduct business, does that impact what state you should pick? Yes.
However, be careful about what it means to “transact business”. If you intend to purchase real estate and then rent out that real estate, you are acting as a landlord and definitely “transacting business” even though it feels like the primary purpose of your LLC is to hold real estate.
Assuming you will not be renting, generating revenue from operations, or otherwise “transacting business” with your LLC, and instead simply want to protect assets, then we don’t need to form a LLC where you’re “transacting business” because you’re not transacting business.
Instead, if you want to protect assets, your best bet is to select a state that has passed the Revised Uniform Limited Liability Company Act (or RULLCA). This is because the RULLCA contains provisions that make it harder to “pierce the corporate veil”, obtain charging orders, and foreclose on the assets.
As of this writing, 21 states have enacted the RULLCA, and of those, Alabama (AL), Iowa (IA), and Wyoming (WY) are anonymous state. Therefore, if you are located in one of these states, then that’s where you should form your LLC. If you are located in another state, we would recommend Wyoming (WY) simply because of its cost and effectiveness.
Finally, if you’re thinking of moving real estate into a LLC or Trust, we want to strongly encourage you to find and hire a local real estate and/or Trust attorney in the state where the real estate is located. Do not rely on Trusts from Internet companies — only hire a local, licensed attorney to help you with these issues.
Law 4 Small Business (L4SB). A little law now can save a lot later. A Slingshot, LLC, company.
Author: Larry Donahue
Larry Donahue is an attorney and founder of Law 4 Small Business, P.C. He is licensed to practice law in Illinois, New Mexico and the US Patent and Trademark Office.
