Secrecy Advantage Of Forming LLCs and Partnerships In States Other Than Florida
When you file an LLC in Florida you have to name the person who is serving as manager and indicate if the manager is also an LLC member. I often get asked by clients and blog readers if there is a benefit to form an LLC in states which do not publish either the owner or managers on the state’s website. You can form an LLC in Delaware, Nevada, Wyoming, and maybe other states without naming the manager or LLC owners. Also, public access to these other states’ website is more limited than Florida’s website.
Some people see a “secrecy” advantage in creating LLCs in these states. They believe that their creditors will likely search the public records of Florida and other states to see if the debtor owns or is associated with an LLC formed in these states. If the creditors do not find any business entities associated with the debtor’s name in the public record, the creditors will be less likely to pursue aggressive collection of the debtor-according to the secrecy theory.
In my opinion, this is hogwash. I don’t think creditors search public records in order to decide whether and how aggressively to collect judgment debts. Also, there is no secrecy in debt collection or in asset protection (other than perjury). Within 45 days after a civil judgment is signed the debtor is usually required to send the creditor a financial affidavit which lists all of the debtor’s assets. When a creditor takes the debtor’s deposition in aid of execution of the judgment the creditor will ask the debtor to describe his interest in any LLC, partnership, or other business entity. In the course of the creditor’s discovery procedures the debtor’s business interests will be disclosed and the secrecy advantage of forming the LLC in another state will be lost.
With the passage of Florida’s new LLC law in 2011, Florida law provides asset protection benefits to partnerships and multi-member LLCs which is as good as any other state. As in Delaware, Wyoming, and Nevada the creditor charging lien is clearly the creditor’s exclusive remedy of collection against all but single member LLCs. I generally advise Florida residents to form partnerships or multi-member LLCs in Florida or in another state with good LLC laws where the clients own property or operate a business.
Actually not true. While I would agree the secrecy advantage may not be that great, the fact information sheet that you are served after a judgment does not require you to disclose your interest in a business. You have to provide information about all the real estate you own, last three months financial accounts (bank accounts, stocks, etc), titles for all vehicles you own, information about your employer and salary (last paystub), and last two years tax returns within 45 days. I know because I just got one. It is pretty likely that information about your business will be on your tax returns anyway.