Anonymity in Delaware
June 28, 2013 | By Kevin Vela
Delaware, affectionately known as “The First State”, is a go-to business state. Longstanding favorable corporate law, minimal filing fees, low taxes, a court system well versed in complex business issues, and flexible corporate structure are just a few of the reasons such a tiny little state is home to a huge number of business entities. But, for many, one of the more attractive aspects of forming a business in Delaware is the ability to maintain anonymity.
Because let’s face it, whether it’s the members of an LLC or even the names of your corporate shareholders, some people just don’t want the entire world to know their business.
Under Delaware law, members can form an LLC without having to place their name on any public documents—eliminating the paper trail. But while many believe Delaware offers this same comprehensive anonymity to corporations, this is actually not the case.
Although members of an LLC and shareholders of a corporation may enjoy the option of remaining anonymous, a.k.a. stealth mode, directors of a corporation are no longer so lucky.
Historically, Delaware has required that the names and addresses of the corporation’s directors be included in an annual report filed along with its franchise tax report, but the penalty for not filing the report was minimal (a fee of $25 to $100 dollars and the possibility of “investigation” by the Attorney General)—we call this “a slap on the wrist.”
Within the last decade, however, Delaware has gotten serious about these annual reports and has amended their laws accordingly.
Under current Delaware law, corporations that fail to file a complete annual report will not receive a Certificate of Good Standing from the Secretary of State, and because the Certificate of Good Standing is how corporations prove they are a legally valid company, this penalty is what we call “effective.”
So what does this have to do with anonymity?
The annual report must list the names and address of all directors as of the filing date of the report, as well as the address of the officer signing the report on behalf of the corporation, and even though this report is not a searchable document on the Delaware Secretary of State website, it is a public document; thus anyone may simply request a copy from the Secretary of State’s office.
(Note that LLCs are only required to pay an annual flat entity tax—there is no required annual report.)
So while there are some options for those trying to fly under the radar, remaining anonymous might not be as easy as simply running to The First State offering a hiding place. Simply put, Delaware no longer offers complete anonymity for corporations. LLCs are another story. Regardless, it’s always best to do a thorough check (or hire an attorney) before choosing where to form your business.
Posted in Privacy
Kevin Vela is the managing partner at Vela Wood. He focuses his practice in the areas of venture financing, mergers & acquisitions, corporate law, capital raises, and real estate investment activities. You can see Kevin’s attorney profile HERE.