The Importance of Anonymity for Your LLC


Anonymity LLC Set up

Most investors are unaware an LLC can be set up without the investor’s personal information publicly disclosed to anyone with access to a computer.  A key component of creating an asset protection shield is to maintain a veil of privacy around your assets.  Its common sense that if you appear worthless, a creditor will be forced to weigh the options of bringing a claim because the possibility of recovery is highly suspect.

Unfortunately, most real estate investors and professionals who establish LLCs either do not know how to create an LLC without the investor’s information being publicly exposed or downplay the importance of anonymity in planning.  (I believe the latter is a direct result of a professional not understanding how to create the former.)  When an LLC is organized, the organizer must select between a manager-managed, or member managed LLC.  With either LLC form, 45 states require the LLC organizer disclose the LLCs manager(s) or member(s).  This information is publicly available because on the state’s secretary of state website.

How important is anonymity?  Very!  Consider a recent situation involving a real estate investor in California who I will refer to as John.

Five years ago John established a California member managed LLC to hold his rental duplex.  A year ago John defaulted on a contract he signed personally.  The other party sues and obtains a judgment against John for $200,000.  John thought he was judgment proof because the only asset he owned is his car and the LLC.  John was taken by surprise when he attempted to refinance his duplex, to pull some cash out, and the lender informed him his creditor had filed a lis pendes against his duplex and he could not refinance the property without paying off his personal creditor.

John’s creditor performed an asset search in California and discovered John was the member of an LLC.  A follow-up search discovered the LLC owned a duplex.  Armed with this information, the creditor placed a lien on the property held in John’s LLC.  If you are wondering how John’s personal creditor can access real estate inside of an LLC don’t bother, they can.  The actions of John’s creditor is not about what is right but rather, how much trouble, angst, and financial pain the creditor can create in John’s life to force him to settle the creditor’s claim.  This creditor is arguing John committed a fraudulent transfer when he moved his rental into his LLC.  When bringing this type of action, the creditor is within its rights to file a lien against the property held in the LLC.  Now John will probably ultimately prevail because the property was transferred into the LLC 4 years before the lawsuit but, John’s major asset is tied up pending the outcome of his case.

John’s obvious mistake was not using an anonymity strategy to protect his association with his California LLC.  If John had contacted me five years ago, I would recommend he set up a Wyoming LLC with a nominee manager to hide his identity.  Following the creation of the Wyoming LLC, we would set up John’s California LLC with his Wyoming LLC as its member manager.  Thus, when someone looked at the California LLC, it would point not to John but the Wyoming LLC.  If the someone followed this trail and looked up the Wyoming LLC it will point to a nominee manager and not John who is the actual, but undisclosed, manager of the Wyoming LLC.

Here is a short video on how this strategy works.


12 comments On The Importance of Anonymity for Your LLC

  • I’m wondering why not New Mexico? Supposedly, you can have a completely anonymous LLC. Also, the registration fee is just $49, and I’ve seen several registered agent services for $49/yr also.

  • Clint, I know your specialty is business and RE asset planning and protection. But, can some of these same strategies be applied to traditional IRA asset protection from confiscation and legal actions if I’m already retired? My situation is too lengthy to cover in this blog. But, since I’m an expat I was going down the road of having an offshore IRA LLC, anonymous and non-reporting domestic LLCs, etc. But, your YouTube video on QRPs alerted me to re-think this approach. Consult time, right?

  • What about using a Delaware or Wyoming C corp to own LLC’s for each individual property? I know that there are possible double taxations involved in a C corporation. But I like the idea of having no cap on investors and the friendliness to raise capital through a VC firm. As well as the ability to later offer a IPO. Love the blog btw

    • Rodney the number of investors and type depend on the filing you register under. You could use an LLC with an unlimited number of accredited investors under certain filings. This is why you need a great securities attorney in your corner.

  • I would like to purchase a quad-plex in Oklahoma which I am currently living in but have a previous judgement against me from a credit card company that is not reporting my judgement to any of the the major 3 credit bureaus. This will be my first property I will purchase under a LLC and was wondering how to get anonymity and/or asset protection from your company moving forward.

  • This strategy would work brilliantly if not for the fact that when a loan is personally guaranteed you have to disclose all of you assets regardless of whether or not they are in an LLC so your creditor will be able to file that lien either way unless you commit fraud on your disclosure documents. Your creditor will also require you to assign all LLC assets as part of the guarantee if it is filed in a state that offers good protection.

    In the case of a legitimate lawsuit with a potential large settlement the other party will request you ro list all assets in discovery resulting in the same thing as above.

    An insurance policy allows you to list multiple entities as named insureds providing coverage for all of your real estate assets under one policy.

    • Mike, you are correct. When borrowing money you will always be associated with any loan you personally guarantee. Anonymity in this context is not meant to hide assets from a lender. In fact, as you point out, you cant because the lender will require collateral for the loan so you must disclose your ownership of the property held in the LLC. The point of this type of asset protection is to hide your ownership from outside interests. I do not want any potential creditor from discovering what I own because this will only embolden the plaintiff attorney to push harder. Further, in a lawsuit, the discovery of my assets pre-judgment is highly unusual. Why would the plaintiff need to know if I am worth 1 million or 100k if I am being sued by an invitee who injured himself while on my property? The other party can request all they want but a decent attorney will object and instruct his client not to answer the rogs or questions in a dep regarding assets and net worth. This is only relevant post-judgment in supplemental proceedings when the court is dealing with collecting on the judgment.

      I agree anonymity and LLCs are not sufficient you must also have insurance.

  • I like this strategy and will reach out to do an initial consult. But I’m actually a week or two away from doing a refinance on several of my properties in CA and have already created a CA LLC to place the properties under it. The bank has agreed to lend to the LLC.

    Can I simply list a nominee manager in the california SOI?

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