Secrecy is a relative concept. If you think a limited liability companies (LLC) will protect you from a vindictive spouse, cheated business partner or Uncle Sam, you’re mistaken.
In a previous post, I wrote about LLCs and how they are often preferred by individuals who may desire secrecy as to their actions. While LLCs do enjoy generally higher levels of secrecy than other forms of business entities, I believe this needs to be understood in context. For the purposes of this discussion, the focus will be on Delaware LLCs since they are probably the most popular. However, some of the articles I link to will focus on LLCs in other states but the principles discussed here will be consistent.
Here’s where secrecy does exist. Imagine some random person wants to know who formed an LLC or who the members of an LLC are. Delaware doesn’t require that an LLC keep their Division of Corporations updated with a list of members. The only information Delaware will have on file with respect to an LLC is the contact information of the registered agent. Registered agents are required for LLCs and it is through these registered agents that service of process on an LLC can be effected. Registered agents are not the same as “formation agents” but “formation agents” often can fulfill the duties of being listed as a registered agent. Formation agents are the third-party companies which will set up your LLC with the Delaware Division of Corporations. I’ve used multiple services to establish business entities, including LLCs, for clients. One of, if not the most popular, is Harvard Business Services, Inc. Harvard Business Services is very good at what they do but I’m sure other companies do a great job also. My discussion here will use Harvard Business Services in the examples only because I’m most familiar with their procedures from my experience.
Here’s where secrecy doesn’t exist – if the person seeking information about an LLC has a real legal controversy with respect to that LLC. “Legal controversy” is another way to say lawsuit. So if you’re in a lawsuit and one of the opposing parties is an LLC, there’s no more secrecy. This is for good reason. It simply isn’t possible “to litigate under the diversity jurisdiction with details kept confidential from the judiciary.” Belleville Catering v. Champaign Market Place, 350 F.3d 691, 693 (7th Cir. 2003). Overall, the secrecy of any entity formed within the United States is limited. Ultimately, a judge or an investigative agency of a state or federal government will be able to force the disclosure of whatever information you attempt to hide. Other countries might offer better options – i.e., Lichtenstein – but eventually if you need to set up an LLC in Lichtenstein because you fear being linked to the activities of your LLC, I’d advise you not to even do it. You can’t run from the authorities and while you may get a head start by creating multiple layers of protection, it’s likely you’ll be identified. It’s my opinion that only relative secrecy exists. “Secrecy,” especially in today’s world with the internet and where government agencies and officials are seemingly hacked incessantly, is a myth.
If I were a reporter and wanted to investigate an LLC, I couldn’t just call up Delaware’s Division of Corporations or the formation agent which created the LLC and say, “I’m doing a story on LLCs. Can you tell me who contacted you to set up Acme, LLC?” The formation agent won’t say, “Well Mr. Reporter, since you asked politely, Oleg Malankov formed Acme, LLC on June 8, 2014. Here’s his telephone number. I’m sure he’ll be happy to hear from you. Good luck.”
But if you’re in a lawsuit with Acme, LLC you now have subpoena power. This ability is tremendous in that you can now obtain records which the general public could not, in order to prosecute or defend your lawsuit against Acme, LLC. As I mentioned previously though, the only information which the formation agent will have on file is the name of the person who formed the LLC and any other information provided to them during the formation process. You’ve got to understand the limitations though. Harvard Business Services and other formation agents do not require that the person who establishes the LLC with them be a member of the LLC. This is where things get tricky because if someone really wants to hide, they can have a lawyer, accountant, friend or relative form the LLC with the formation agent. So when you subpoena Harvard Business Services, all you’ll get back is someone who obviously has no connection to Acme, LLC but was just selected (“nominated” is generally the term used) by the “beneficial owner.” There’s been a lot of controversy surrounding disclosure of beneficial ownership and in another post I may address that. For now, google offers a lot of information if you seek to explore this issue on your own.
Playing out this process though, you serve a subpoena to Harvard Business Services. I’m including in this post a subpoena duces tecum I prepared and successfully used to obtain information which was not publicly available relating to an LLC in the course of litigation. In a subsequent post I will analyze why I prepared the subpoena in the way I did and the changes you should make based on the entity which the subpoena will be served upon.