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4 • 2010

Delaware: Homerun for Celebrities and Investors

Limited information collected by Delaware makes it an ideal jurisdiction for clients who are concerned about protecting their identity.  For celebrities or investors who prefer not to be publicly identified, forming a company in Delaware is a homerun.

When a California investor acquires property through a LLC and acts as the manager, the report that must be filed with the California Secretary of State (Statement of Information) identifies the investor (publicly) as the manager of the company.  The investor who forms a corporation or a second LLC to act as the manager is no better off, as the manager would be identified (publicly) on the Statement of Information for the second LLC.

Delaware, like most states, collects information when a company is formed and annually thereafter.  However, Delaware is unique in the limited amount of information requested.  First, when a new LLC is formed, the Certificate of Formation only identifies the name of the company, the resident agent, and the name of an authorized person who signs the form.  The authorized person is typically a lawyer who is handling the formation of the company.  Delaware LLCs must pay the $250 LLC tax on June 1.  When filed online and paid with a credit card, unlike most other jurisdictions, no member, manager, or address information is requested or confirmed; and no signature is required.  In short, the annual filing requirements for a Delaware LLC can be handled without a trace of the person handling the filing.

When our real estate investor in California wishes to protect his or her identity, the solution is to form a Delaware limited liability company to own the property, which is then qualified to do business in California. A second Delaware LLC is formed to act as the manager.  As Delaware does not collect information on the identity of its managers, there is no public record that identifies the real estate investor.

Over the years, there have been a lot of schemes designed to conjure up identity protection, but these schemes have been mostly hocus pocus.  Many clients have asked about using “nominees”, which are essentially hired guns who will act as a corporation’s officers or as the manager of the LLC.  However, these schemes are expensive, and wrought with risk associated with appointing a complete stranger as the CEO of your company.  Delaware has a sophisticated judicial system, and is a preferred jurisdiction for the flexibility and mobility it provides to those who form businesses there.

Although Delaware has been criticized as the “world’s most secret financial location” (http://www.guardian.co.uk/business/2009/nov/01/delaware-first-choice-tax-haven), and there is undoubtedly room for abuse, celebrities, public figures, successful investors, and others have a legitimate interest in safeguarding their personal information.