How to Protect Your Identity In Corporate Transactions

There are many legitimate reasons why an investor may prefer that his or her name not be publicly disclosed.  When the goal is to preserve anonymity, we have long recommended Delaware as the best choice of jurisdiction.  See, Delaware: Homerun for Celebrities and Investors.

But it is equally important to be cognizant of what information becomes publicly available when a company qualifies to do business in a state other than the jurisdiction where the company is formed.

To illustrate the importance of taking care to consider public disclosure requirements, let’s suppose an investor acquires 5% of the shares of a California corporation.  The investor is neither an officer nor a director of the corporation.  Because California does not require public disclosure of shareholders, the investor’s identity is not available to third parties.  If the company then opens an office in a state that requires public disclosure of shareholder information (e.g., Alaska, Louisiana or Maine), the investor’s name becomes a matter of public record.

We analyzed each state’s requirements.

• 86% of states require public disclosure of directors.  Only seven do not (Colorado, Minnesota, New Jersey, Ohio, Oregon, Pennsylvania, and Washington).
• 94% of states require public disclosure of officers.  Only three do not (Alabama, Colorado, and Ohio).
• Only three states require public disclosure of shareholders (Alaska, Louisiana, and Maine).  Arizona requires public disclosure of shareholders who own 20% or more of the shares of the company.
• 86% of states require public disclosure of LLC Managers.  Only seven do not (Alabama, Colorado, Delaware, Indiana, Iowa, Michigan, and Ohio).
• Only four states require public disclosure of LLC Members (Alaska, Kansas, Mississippi, and West Virginia.