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Form an Anonymous LLC for Additional Asset Protection.

BY: SW Haeger

Starting an investment business?

It comes as a surprise to many new investors that it is possible to create an LLC without publicly providing identifiable information that anyone on the internet can access. If asset protection is a high priority (as it is to most, if not all, potential investors) then keeping your investments as private as possible is going to be of utmost importance. If creditors can’t locate your assets and therefore believe you are of little net worth, it is entirely likely that the cost of filing suit and pursuing your assets may suddenly outweigh any potential benefit that may be gained by doing so.

As most investors aren’t aware of this potential extra layer of security, they never seek it out and incorporate without ever having even been advised that it is a real and open possibility. While entirely excusable if they have chosen to incorporate on their own, one should seriously consider a new advisor if an anonymous LLC is not at least considered when forming an LLC for investing purposes or for personal asset protection.

It is important to note that the substantial majority of states do require disclosure of either the LLC’s managers or members be disclosed and, therefore, listed on website of the Secretary of State of the applicable state of choosing. There are, however, five states where this is not the case.

An example to consider.

To show the potential importance of an anonymous LLC, I’d like to give you a case example. Leslie owns a residential building in Midtown Atlanta which she has subdivided into four apartments. After making the division and leasing out the apartments, she forms a Georgia LLC and transfers ownership to the LLC. Three years later Leslie enters into a contract with a developer and ultimately defaults on a $200,000.00 obligation under the contract.

The developer sues and obtains a judgment in the Cobb County Superior Court. As her car and the apartment building are her only assets, and both of those are owned by the LLC, she believes she is judgment proof. When she attempts to refinance the apartment building, however, she learns that a lien and lis pendens are recorded against the building based upon the judgment. The judgment creditor would have the right to do this under a theory entitled “fraudulent conveyance;” which essentially means the creditor is accusing Leslie of transferring the apartment building to avoid her liabilities for defaulting under the contract.

As she transferred the building to the LLC four years before the judgment was entered against her, she may be able to remove the lien from her apartment building. But that really isn’t the point. The building is her main asset of value after the judgment and it is suddenly tied up in litigation. Litigation she will have to pay an attorney to handle but she is out of money and assets.

What action would have protected Leslie from this financial disaster?

The simple fact is that Leslie could have protected herself if, rather than forming an LLC in her home state of Georgia, she had instead filed an LLC in Wyoming used a nominee manager. Leslie then could have formed a Georgia LLC and made the Wyoming LLC its’ sole member and manager. Had this been the case for Leslie, the judgment creditor would only have found the Wyoming LLC as the member-manager of the Georgia LLC, rather than Leslie herself. If, after finding the Wyoming LLC as the member manager the judgment creditor continued the search to Wyoming, they would find only the nominee manager, rather than Leslie, who remained the undisclosed member of the Wyoming LLC.

It would be unprofessional of us not to point out that, just because an LLC is anonymous, it does not prevent all liability. The anonymous LLC can still be served with summons and complaint and, if it does not respond to the lawsuit, a default judgment can be entered against it. While this action would generally need to take place in Wyoming, there are several reasons it would not have to, such as an ownership interest in a Georgia property. In Leslie’s case, this means that, while she may have prevented her apartment building from being attached by the judgment due to a personal liability, this does not prevent the anonymous LLC from being sued in tort for an occurrence on the apartment complex, or in contract by the company hired to manage the building.

In Conclusion.

I only bring up this last point so you know there are a number of considerations to make prior to deciding on an LLC. Another is cost, as it is obviously a little more expensive to form two LLC’s, pay a registered agent service in Wyoming, among other additional expenses. But the potential additional asset protection it could provide would ultimately be priceless.

Contact us today using the contact form below if you are seeking incorporation of your business or are looking to incorporate prior to beginning a new business. The small amount of time and money it takes to form an LLC for your company vs. the magnitude of the protections it offers are no comparison. Contact us today!

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