How to Start an LLC Anonymously? (Step-By-Step Formation)
Starting an LLC anonymously has numerous advantages, from increased privacy to tax flexibility. However, there are certain steps that should be followed to navigate the process properly.
As an expert in business formation across various states in the country, I'm in a position to provide you with an in-depth guide on how to start your LLC while maintaining anonymity. I’ll also highlight all the necessary information you’ll need during this process.
Quick Summary
- Starting an anonymous LLC involves choosing a privacy-focused state, hiring a registered agent, and following regular LLC formation steps.
- Key states for anonymous LLCs include New Mexico, Nevada, and Delaware, which offer strong privacy protections.
- While the business failure rate in the US stands at 20.8% as per Lending Tree data, the higher success rate of 79.2% within the first year offers encouragement for entrepreneurs considering the formation of an anonymous LLC.
- In my opinion, the strategic formation of an anonymous LLC is not only a smart move for privacy but also a critical step toward securing a business's future in today's competitive market.
How to Form an Anonymous LLC
To form an anonymous LLC, you’ll need to follow the same process as a regular LLC, although it’ll require some extra steps.
This is reflected in the recent surge of business formations, with the US Small Business Administration reporting that between March 2021 and March 2022, 1.4 million US establishments, including anonymous LLCs, were opened [1].
It involves several steps, which may vary depending on the state you choose to incorporate.
1. Choose a State for Incorporation
The first step in forming an anonymous LLC is to select a state that offers strong privacy protections.
States like Delaware, Wyoming, and New Mexico are popular choices due to their favorable corporate laws and enhanced privacy features.
These states do not require the disclosure of members or managers in public filings, offering a high degree of anonymity. It's essential to consider the state's legal environment, tax structure, and filing fees.
Researching and comparing the specific requirements and benefits of each state is crucial. For instance, Wyoming is known for its low fees and minimal reporting requirements, whereas Delaware is famous for its well-established legal precedents and business-friendly environment.
"To be successful, you have to have your heart in your business, and your business in your heart."
— Thomas Watson, Sr, Former CEO, IBM.
2. Choose a Name for Your LLC (Mandatory)
Choosing a unique name for your LLC is a critical step.
The name must comply with your chosen state's naming conventions, which typically include certain restrictions and requirements. For example, the name must be distinguishable from existing entities registered in the state and must often include words like "Limited Liability Company" or abbreviations like "LLC."
It’s advisable to conduct a thorough search through the state’s business registry to ensure that your desired name is available and does not infringe on any existing trademarks.
Additionally, consider if the name reflects your business identity and is versatile for future business expansions. Once a suitable name is chosen, it may be reserved for a period, typically a few months, by paying a reservation fee to the state.
3. Select a Registered Agent (Mandatory)
A registered agent acts as your LLC's official point of contact for legal and tax correspondence. This is particularly important for an anonymous LLC, as the agent's information will be listed on public records instead of your personal details.
You’ll need to hire a third-party LLC registered agent to represent the face of your LLC in public. You can check our guide on the best-registered agent services available.
The agent must have a physical address (not a P.O. Box) in the state of incorporation and be available during business hours.
You can appoint an individual like an attorney or a professional registered agent service. The latter often provides additional privacy and is adept at handling legal documents confidentially and efficiently.
Having an attorney assist with the process can be beneficial.
While it's not a strict necessity when setting up an anonymous LLC, an attorney may provide valuable guidance on the legal requirements [2].
Consulting online legal service providers or attorneys may also help maintain anonymity by being a registered agent.
4. File Articles of Organization (Mandatory)
File the Articles of Organization with the Secretary of State of your chosen state.
This document includes essential details about your LLC, such as its name, principal address, purpose, duration, and information about the registered agent.
In states permitting anonymous LLCs, you may not need to list the owners' names, enhancing privacy. The requirements for these articles vary by state, including the information required and the filing fee.
Take it from our experience, it is crucial to complete this document accurately and comply with state-specific guidelines to ensure the legal establishment of your LLC.
Once filed and approved, your LLC is legally recognized, allowing you to proceed with business operations under the LLC's name. Keep in mind that this document is public, so any information provided will be accessible to the public.
Steps to Take After Forming an Anonymous LLC
After successfully forming an anonymous LLC, it's important to take specific steps to ensure its smooth operation and ongoing compliance with legal and financial obligations.
These steps will help in maintaining the anonymity of the LLC while also securing its legal and financial foundation for future business activities.
5. Create an LLC Operating Agreement (Optional, but Recommended)
The operating agreement will outline the management structure of the LLC. It should also include provisions for keeping the identities of the members confidential.
Although not legally required in all states, it's a critical document for clarifying financial relationships and operational procedures among members.
This agreement should detail the distribution of profits and losses, management structure, voting rights, and procedures for adding or removing members.
It also provides contingency plans for the dissolution of the LLC or the transfer of membership interests.
A well-crafted operating agreement can prevent disputes among members and provide clear guidelines for handling unforeseen circumstances.
It’s a customizable document, allowing you to tailor the agreement to fit the specific needs and structure of your LLC.
6. Apply for an Employer Identification Number (EIN) (Optional, but Recommended)
An Employer Identification Number (EIN) will be necessary for opening bank accounts and filing taxes. You can obtain an EIN from the IRS [3].
Applying for an EIN is straightforward and can be done online or by mail. This number is unique to your business and functions similarly to a Social Security number for individuals, but for a business entity.
Even if you don't plan to hire employees, an EIN is often required for opening business bank accounts and handling other financial activities.
We've learned from our experience that it’s important for maintaining the separation between your personal and business finances, which is, in turn, critical for the liability protections offered by an LLC structure.
Applying for an EIN is free of charge and should be done soon after your LLC is officially formed to ensure compliance with tax obligations.
7. Open an LLC Bank Account (Optional, but Recommended)
A separate business bank account for your LLC is vital for maintaining your liability protection and organizing finances.
Set up a bank account in the name of the LLC. Be sure to use the registered agent's address on the account.
Another step to help seal your identity is hiring an attorney to establish your anonymous company.
To open this account, you’ll need your EIN and a copy of the Articles of Organization.
A business bank account helps in distinguishing personal expenses from business transactions, a crucial aspect for tax purposes and legal protection. It enhances your business's credibility and professionalism when dealing with clients and vendors.
Additionally, it simplifies accounting and tax preparation, making it easier to track business expenses and income.
Choose a bank that offers services suited to your business needs, such as low fees, convenient online banking, and additional business services like credit lines or merchant services.
8. File Your LLC Annual Report
The annual report, typically submitted to the state’s business filing agency, keeps your company’s information up to date with the state.
It often includes basic details about your LLC, like the principal office address, registered agent information, and sometimes the names and addresses of the LLC members or managers.
For an anonymous LLC, ensure that the report aligns with state laws regarding the disclosure of member information to maintain your anonymity.
The frequency and due dates for these reports vary by state, so it's important to be aware of your specific state’s deadlines to avoid penalties or potential dissolution of your LLC.
Regular filing of the annual report is a straightforward yet essential task to keep your anonymous LLC compliant and in good legal standing.
9. Obtain Business Licenses and Permits
Securing the necessary business licenses and permits is a vital step for your anonymous LLC to operate legally and in compliance with local, state, and federal regulations.
The specific licenses and permits required depend on the nature of your business, its location, and the industry regulations.
It’s important to research and understand the licensing requirements pertinent to your specific business activities. This may involve contacting local government offices or consulting with a legal professional to ensure all necessary permits are obtained.
Remember, while your LLC is anonymous, compliance with licensing and permitting regulations is public and essential for legal operations. Failure to obtain the appropriate licenses can result in fines, legal action, or the inability to operate your business.
10. Choosing Your Tax Structure
LLCs offer flexibility in taxation, allowing you to choose how your business will be taxed—either as a sole proprietorship, partnership, or corporation.
If your LLC has only one member, it is automatically treated as a sole proprietorship for tax purposes, meaning profits and losses are reported on your personal tax returns.
Multi-member LLCs are treated as partnerships, distributing profits and losses among members, who then report them on their personal returns.
Alternatively, you can elect for your LLC to be taxed as a corporation, either an S corp or a C corp, which can offer tax benefits under certain conditions.
The decision should be based on factors like the size of your business, revenue, and business goals. It’s advisable to consult with a tax professional to understand the implications of each option and make an informed decision that aligns with your business strategy and financial objectives.
Benefits and Drawbacks of an Anonymous LLC
Benefits:
- Asset Protection: An anonymous LLC can also offer asset protection for its owners. Shielding the owners' identities can make it more difficult for creditors to pursue them for personal debts or other legal actions.
- Enhanced Privacy: It helps keep your personal information private. If you're doing business in a state where you don't have residency, forming an anonymous LLC can help keep your identity and personal information confidential.
- Increased Security: Your identity will be undisclosed. Thus, it would be difficult for hackers or malicious individuals to target your company.
- Tax Flexibility: Anonymous LLCs also offer tax flexibility. It will allow you, as the owner, to select your business's most advantageous tax structure.
Drawbacks:
- Complexity and Cost: Forming and maintaining an anonymous LLC can be more complex and expensive than a standard LLC. This may involve additional legal fees, registered agent fees, and the costs associated with states that allow for anonymous LLCs.
- Limited Jurisdiction: Not all states allow for the formation of anonymous LLCs. Business owners may need to form their LLC in a state different from where they conduct business, which can complicate operations and tax considerations.
- Regulatory Challenges: Anonymous LLCs may face more scrutiny in certain areas, such as opening bank accounts or engaging in large financial transactions, due to increased regulatory measures against money laundering and financial fraud.
DIY vs. Professional LLC Formation
DIY LLC Formation
Pros:
- Cost Savings: The most apparent advantage of DIY is the cost. You avoid professional service fees, which can be significant, especially for a small business or startup.
- Learning Experience: Handling the formation process yourself provides valuable insights into the legal and operational aspects of your business.
- Complete Control: You have direct oversight of every step, allowing for immediate adjustments as needed.
Cons:
- Time-Intensive: The process can be time-consuming, demanding substantial research to understand state-specific regulations and requirements.
- Limited Legal Knowledge: DIY lacks the depth of legal understanding that a professional can offer, which might be critical in navigating complex legal landscapes.
Professional LLC Formation
Pros:
- Expert Guidance: Professionals bring expertise and experience, ensuring that the process adheres to legal requirements and best practices.
- Time Efficiency: Outsourcing this task saves you time, allowing you to concentrate on other business operations.
- Peace of Mind: There's reassurance in knowing that experts are handling the formation, reducing the likelihood of errors.
Cons:
- Higher Cost: Professional services can be a significant investment, which might be a consideration for those with limited funds.
- Generic Approaches: Some services may offer standardized solutions that might not be fully customized to your specific business needs.
FAQs
What States Allow Anonymous LLCs?
Delaware, Nevada, Wyoming, and New Mexico are the states that allow anonymous LLCs. However, you’re required to file corporate income tax.
You should, nevertheless, consult with an attorney to ensure you're following all the proper laws and regulations for anonymous LLCs.
Can I Put My Business Entity in Someone Else’s Name?
You can put your business entity in someone else's name, provided they are authorized representatives.
Secondly, ensure the company is registered in the same state where you plan to do business. Finally, have a written agreement between you and the other person stating responsibilities and how any profits or losses will be shared.
Does the IRS Know Who Owns an Anonymous LLC?
Anonymous LLC ownership has privacy laws protection, although the Internal Revenue Service may obtain ownership information under certain circumstances. These circumstances may be during an audit or investigation. However, the process can be complex and may require a court order.
References:
- https://advocacy.sba.gov/wp-content/uploads/2023/11/2023-Small-Business-Economic-Profile-US.pdf
- https://www.ohchr.org/en/instruments-mechanisms/instruments/basic-principles-role-lawyers
- https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
How do you get around the Corporate Transparency Act?
After reading this, I feel much more confident about setting up my anonymous LLC. The process seems less complicated when broken down like this.
I honestly thought you could only be anonymous if you were running some shady operation. Glad to see it’s a legit option for entrepreneurs who want some peace of mind while starting their LLC.