The Importance of Anonymity for Your LLC

The Limited Liability Company (LLC) has more than fairly earned its reputation as an excellent foundation for asset protection. But even the trusty LLC isn’t the be-all and end-all of your asset protection strategy. LLC anonymity is another piece of the puzzle.

True, LLCs and Series LLCs make wonderful entities for protecting your real estate investments and other high-dollar assets, but did you know these entities can actually become even stronger? The secret component that can strengthen any investor’s asset protection plan is actually critical for preventing lawsuits and even keeps identity thieves at bay. If you haven’t yet guessed, that secret ingredient is anonymity. And there’s more than one way to achieve a truly anonymous LLC.

Let's look at a few of them now.

Don’t Assume Your LLC Is Already Anonymous 

Unless you made a conscious choice to buy an anonymous LLC, odds are good that your traditional LLC  has membership recorded somewhere on the public record. If that’s the case, don’t panic! You can still take proactive action to increase your anonymity.

But of course, the best thing any investor can do is not compromise anonymity in the first place.

In most states, members of LLCs must be recorded by the Secretary of State. Those sites are a quick web search away, so anyone who can type can find an LLC’s owners. For this reason, most LLCs aren’t truly anonymous. If you record your real name, you can be directly tied to your LLC, which means it’s not really protecting you.

Although there’s a surprising amount of consistency between traditional LLCs, each state’s asset protection laws are unique. Most investors don’t even take an up-close look at the state statutes for LLCs/series LLCs until they’re planning to buy an entity for themselves. If you’ve already established yours, you should know if you took anonymity steps.

If your attorney took these extra steps, to make sure your LLC was anonymous, your attorney likely would have mentioned it at the time of formation.

If you have specific questions about how protecting your anonymity preserves your hard work, speak with a qualified real estate attorney as well as an advisor who is familiar with your investment market(s). Let’s shift gears and dive into the decision-making process you’ll use to select the entity for your real estate investing business.

Options for Forming Anonymous LLCs

We’ve chosen two of the easiest methods any investor can use to form an anonymous LLC. Let’s break down two of the most common options for real estate investors who need anonymous LLCs.

Method #1: Use Land Trusts Alongside Your LLC Structure

The Anonymous Land Trust is commonly referred to as a title-holding trust, because that’s exactly what it does. These revocable trusts can be used in conjunction with LLCs in several ways.

First, a land trust may be the owner of an LLC. So even if you must record your LLC’s ownership for the public record, you can still remain personally anonymous. The harder you are to tie to your LLC, the better protected you are. Anyone who goes digging won’t see your name on the public record, or that of your other members if it’s a multi-member LLC. They’ll see the name of your anonymous land trust.

If you want total anonymity, you can even pre-select an individual to sign in your place on business documents. Regardless, you can enjoy the other benefits of the land trust, which include the ability to easily assign interest to new partners. Anyone in your LLC or even a joint venture-owned property in a trust can be made a beneficiary of the trust. One of the many lesser-known perks of the anonymous land trust is it makes adding investors and dividing property simple.

Method #2: Purchase an Anonymous LLC From a Service Offering One

Not all real estate attorneys or even asset protection professionals offer a pre-fabricated anonymous LLC, but those who do generally can substantiate what they’ve done to make their LLC truly anonymous. If their webpage doesn’t offer an explanation on the anonymity benefits of such an offering, you can even dial up the firm and ask questions. 

Keep in mind that people in all sorts of positions pick up law firm phones, so you might get a great receptionist who takes a detailed note and gets you a callback, a busier staffer who simply takes your number, or you could luck out and get to talk to an attorney briefly about your question. Most firms have staffers who can help explain their products, so don’t assume only the attorney whose name you see on the sign is the only person who can help with your question. A reputable law firm will generally have many qualified people around to help you understand their services.

Knowing how to select a good law-firm option often comes down to asking the right questions. Some key things to look for if you’re not sure about an Anonymous LLC offering include these details:

If you’re willing and able to ask these questions, you can shop around and find the right offering for you. Don’t be afraid to look beyond your home state, either, particularly if you live in one that only offers the Traditional LLC. You may be able to solve two or more problems, like creating an out-of-state entity for real estate and managing multiple properties, with the Series LLC—an entity available in under 20 states.

Even if yours isn’t on the list of states currently offering Series LLCs, the good news is that REIs can select any state as “home base” for business. This is true no matter what kind of company you form. Learn more about the best states for forming LLCs or Series LLCs if you are considering making this type of move. You may also be interested in our article, Anonymity & The LLC: States Where Business Owners Love The Laws.

Bottom Line: Preserve Your Anonymity to Decrease Your Odds of Lawsuits

Let’s not lose sight of why anonymity is so important. An ideal asset protection plan must contain anonymity because personal anonymity is the easiest way to maintain legal distance from the liabilities associated with your real estate assets. Whether you achieve anonymity through vigilance about online conduct and information security, via anonymous land trusts, or by forming an anonymous LLC with an attorney’s help, you’ll find the peace of mind you get when you live free of worry is well worth the effort of creating your protections.

Manager-Managed LLCs vs. Member-Managed LLCs: What's Best for Real Estate Investors?

When you establish an LLC, you must plan for its management. LLCs may divide decision-making powers among members or select a manager. If your LLC is single-member, you assume managerial powers, but multi-member LLCs must decide. To make the best choice, check out our breakdown of member-managed LLCs, manager-managed LLCs, their differences, and how to address concerns around manager-managed LLCs.

Member-Managed LLCs vs. Manager-Managed LLCs: The Key Differences

Every LLC must decide between a member-managed or manager-managed structure. A member-managed LLC is the norm. These function like democracies, as power is equitably divided among the members. A manager-managed LLC, however, designates one person for managerial powers. Manager-management can help particularly large companies make decisions.

Whether the manager’s a “professional” or picked from the LLC’s members, the critical thing to know is that they have power over the entire LLC. Consider these company-wide powers delegated to managers:

If you’re appointing a manager, read your LLC’s paperwork carefully before signing to ensure power is limited and manager responsibilities are clear. Even LLCs using managers don’t surrender these member powers:

Managers of LLCs must meet more compliance criteria than members. Managers have to play by both the rules of the company and the law.

Making the Choice: Does Your LLC Need a Manager?

The manager holds a specific legal role. You may select a “professional” manager, as some multi-member LLCs do, or select a manager from among your members. But here are the key issues to be aware of should you choose this route:

The good news is this: for every concern you have, there are ways to address it.

Using a Manager-Managed LLC: Tips for Mitigating Risks

A beautiful thing about the LLC is you have choices. Once you’ve made decisions, they’ll be in plain black-and-white ink for anyone to read in the form of your Operating Agreement. This is your LLC’s Bible.

For instance, some of the concerns about abuse of power are easily prevented by addressing these possibilities and creating checks (like requiring a member vote) in your Operating Agreement. You may choose to make amending the Operating Agreement more difficult or bar managers from making certain calls without member consent. In fact, any matter you’d like member consent on can be accounted for before LLC formation.

The best way to control for problems is in your Operating Agreement prior to forming your LLC. Of course, LLC members truly worried about hierarchy can side-step the entire issue easily by simply forming a member-managed LLC.

The Different Kinds of LLCs & The Way They Pay Taxes

Surprise surprise, for every different kind of LLC, there are also different taxes. It's important for you to know the different taxes for each kind of LLC. You want to keep your friends at the IRS on your good side, don't you?
Let's go over the different types of LLCs, along with the taxes you have to pay for each particular LLC.

The Single-Member LLC

The single-member LLC is an LLC with only one member, as its name suggests. The single-member LLC will always have passthrough LLC tax treatment. This means that instead of having to pay the 39.1%  corporate tax, you can include the profits of your LLC on your personal income taxes.

A Married Couple LLC

A married couple LLC is an LLC whose only members are two people who are married to each other. A married couple LLC will usually have pass-through tax treatment. But this isn't the case if the LLC is formed in a community property state.

If your LLC is formed in a community property state, you will have to file a partnership tax return for your LLC. As of 2018, the following states have community property laws: Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin.

If you file a partnership return, you and your spouse will have to include your respective share of the profits on your income taxes.

Multi-Member LLC

If your LLC has two members that aren't married, then it's considered a multi-member LLC. A multi-member LLC receives pass-through tax treatment. Each member will claim his or her share of the LLC's profits on their respective personal tax returns.

The Series LLC

If you've read my blog before, you may already know a bit about the Series LLC. The Series LLC allows you to create as many "series" as you want. They operate directly under your original LLC, but are treated separately for liability purposes. When it comes to paying taxes with an LLC, things can get tricky.

For example, in California, each series in a Series LLC will have to pay an $800 franchise tax. But in Delaware, no matter how many series you have in your Series LLC, you'd only pay the $300 franchise tax one time.

Because the Series LLC is fairly new, most states allow you to choose the way it gets taxed. Although as new laws get passed, this may or may not change from state to state.

If you have any questions about the tax treatment of LLC's feel free to ask me in the comments below, I'd be glad to help you! In the meantime, check out our previous posts to learn more about pass through tax treatment.