Anonymous LLC: What Are The Pros And Cons?
Summary
TLDRThis video delves into the concept of anonymous LLCs, exploring their benefits and potential drawbacks. The presenter highlights the privacy and asset protection advantages, such as shielding personal information from creditors and preventing identity theft, which can be crucial for estate planning and avoiding unwanted solicitations. However, they also caution against using anonymity in situations where it's legally prohibited, when securing financing for real estate, or in active businesses where transparency is key for credibility. The video offers practical advice on navigating the complexities of LLC anonymity, emphasizing strategic use for asset holding rather than active operations.
Takeaways
- 🔒 Anonymity in LLCs provides privacy and protection from harassment, unwanted solicitations, and personal attacks.
- 🏛️ States are increasingly implementing laws similar to the Corporate Transparency Act to reveal the identities behind LLCs.
- 🛡️ Anonymity can offer asset protection by making it difficult for potential litigants to identify assets owned by the LLC.
- 🚫 Anonymity can complicate the process of securing loans for real estate purchases if the LLC is used as the borrower.
- 👥 Anonymity may be inappropriate for active businesses where transparency and trustworthiness are important.
- 📞 The speaker receives numerous calls and messages due to the assumption that he owns the entities he creates for clients.
- 💡 Anonymity can prevent identity theft by keeping personal details hidden from potential thieves.
- 🏡 An anonymous LLC can be beneficial for estate planning, allowing assets to pass quietly to beneficiaries without public disclosure.
- 📈 Anonymity can deter lawsuits if potential plaintiffs cannot find assets to go after.
- 📝 If anonymity is not allowed in a jurisdiction, setting up a holding company in a state that allows anonymity can be a workaround.
- 🔍 Anonymity can be a double-edged sword; while it offers benefits, it may also hinder business operations and lending processes.
Q & A
What is the main topic of the video?
-The main topic of the video is discussing anonymous LLCs and whether or not one should use them in their business setup.
Why are some states trying to mirror laws off the Corporate Transparency Act?
-Some states are trying to mirror laws off the Corporate Transparency Act to require owners to share their information with the Secretary of State, so they can identify who is behind the LLCs being created.
What are the main advantages of using an anonymous LLC according to the video?
-The main advantages of using an anonymous LLC include privacy protection, asset protection, prevention of identity theft, and benefits for estate planning.
How can anonymity in an LLC protect against harassment or personal attacks?
-Anonymity in an LLC can act as a smoke screen, preventing people from seeing who the actual owners are, thus protecting them from harassment, unwanted solicitations, or personal attacks.
What does the video suggest about asset protection through an anonymous LLC?
-The video suggests that by setting up an LLC with anonymity, it hides the fact that you own it, which can deter potential litigants from suing or make them settle for insurance policy limits if they cannot discover your assets.
Why might anonymity be beneficial in the context of estate planning?
-Anonymity can be beneficial in estate planning because when you pass away, your assets can quietly pass to your beneficiaries without others knowing, preventing potential claims against your estate from creditors or disgruntled heirs.
Under what circumstances should anonymity not be used according to the video?
-Anonymity should not be used when the jurisdiction does not allow it, when buying real estate directly in the LLC with financing, when running an active business where transparency is important, and when the anonymity might complicate or delay the lending process.
What is a workaround suggested in the video for creating an anonymous LLC in a state that does not allow it?
-The workaround suggested in the video is to set up a holding company in a state that allows anonymity, such as a Wyoming LLC, and then have this holding company manage the LLC in the state that does not allow anonymity.
How can anonymity complicate the process of securing a loan for an LLC?
-Anonymity can complicate the lending process because lenders want to assess the risk associated with the actual owners of the LLC. If the LLC is anonymous, it can be more difficult for the lender to evaluate the financial standing and credibility of the owners, which may slow down or even jeopardize the loan approval.
What is the video's stance on using anonymity for active businesses?
-The video suggests that anonymity should not be used for active businesses, especially when the owner's reputation is on the line. It is recommended to maintain transparency in such cases.
What types of assets are suitable for holding in an anonymous LLC according to the video?
-According to the video, anonymity should be used for holding assets such as real estate, rental properties, savings accounts, or private lending activities where the owner's identity does not need to be disclosed.
Outlines
🔒 The Benefits of Anonymity in LLCs
This paragraph discusses the concept of anonymous LLCs and their advantages. The speaker emphasizes the importance of privacy and protection from harassment, unwanted solicitations, and personal attacks, particularly for those owning rental real estate or passive assets. Anonymity acts as a shield, preventing the public from knowing the business owner's identity, which can be beneficial in avoiding harassment and potential lawsuits. The paragraph also touches on the asset protection aspect of anonymous LLCs, where the ownership is hidden, making it difficult for potential litigants to target the owner's assets. Furthermore, it mentions the prevention of identity theft and the benefits for estate planning, where assets can pass to beneficiaries without becoming public knowledge.
🚫 Challenges and Considerations of Anonymity
The second paragraph delves into the challenges and situations where anonymity might not be advisable when setting up an LLC. It starts by addressing jurisdictional restrictions, such as in Washington state, where anonymity is not allowed, and suggests a workaround by using a Wyoming LLC as a holding company to maintain privacy. The paragraph also highlights issues with obtaining financing for real estate purchases when the LLC is anonymous, as lenders may require transparency of ownership to assess risk. Additionally, it points out that anonymity can be problematic when running an active business, as it may hinder credibility and trust with third parties and the public, who may question the intentions behind the lack of transparency.
🤔 Balancing Anonymity with Business Transparency
The final paragraph wraps up the discussion by advising on when to use and not to use anonymity in business structures. It suggests that transparency is key when you are the public face of an active business, as it builds trust and credibility. However, for holding assets like real estate or savings accounts, anonymity is recommended to protect personal information and maintain privacy. The speaker uses the example of their own firm to illustrate the importance of transparency in building a reputable business. The paragraph concludes with an invitation for viewers to engage with the content by leaving comments and questions, and to subscribe for updates on future videos.
Mindmap
Keywords
💡Anonymous LLCs
💡Privacy Protections
💡Asset Protection
💡Corporate Transparency Act
💡Estate Planning
💡Identity Theft
💡Jurisdiction
💡Financing
💡Active Businesses
💡Public Record
Highlights
The video discusses the use of anonymous LLCs in business setups and their advantages and disadvantages.
Anonymity in LLCs can provide privacy and protection from harassment or unwanted solicitations.
Anonymous LLCs can deter lawsuits by making it difficult for plaintiffs to identify assets or ownership.
Anonymity can protect against identity theft by keeping personal details hidden from the public.
Estate planning benefits from anonymity as it allows assets to pass quietly to beneficiaries.
Anonymity can be compromised if the jurisdiction does not allow for anonymous entities.
A workaround for jurisdictions without anonymity is to use a holding company from a state that allows anonymity.
Using an anonymous LLC can complicate the process of securing financing for real estate purchases.
Lenders may require more information when dealing with anonymous LLCs, which can delay closings.
In active businesses, anonymity can make third parties nervous and question credibility.
Transparency is recommended in active businesses where personal reputation is on the line.
Anonymity is best used for holding assets like real estate, savings accounts, or private lending.
The presenter shares personal experience with harassment due to lack of anonymity in business entities.
Anonymity can be crucial in protecting assets from creditors or legal claims posthumously.
Anonymity can prevent disgruntled heirs from making claims against an estate after the owner's death.
The video encourages viewers to subscribe for more informative content on business structures.
Transcripts
- Hey guys, in this video we're going to discuss anonymous LLCs
and whether or not you should use one in your setup.
Alright, let's get started.
Okay, so when it comes to anonymity,
you've heard me talk about this a lot on this channel
about the importance of setting up your structure
with anonymity.
Now the deal is is that
anonymity doesn't work great in all situations.
Now does have its positive benefits
and in fact it works so well,
there are a number of states now trying to mirror laws
off the Corporate Transparency Act
to get owners to actually have to share their information
with Secretary of State so they know
who's actually behind the LLCs that are being created.
Now, there's a lot of different reasons why they put forth
to collect this information.
Really it always comes down to the state wants to know
what your business is about
and they want to be all up into your business.
But that's a different video.
And this video, what I want to cover is
why would you set up an LLC with anonymity
versus when you would not want to use that.
So what are some of the main advantages
of using an anonymous limited liability company?
Well, first off, it's going to be privacy
protections because here's the deal.
When you have a business and it owns rental real estate
or you have any type of activity that owns a passive asset,
why do people need to know
that you have this business activity?
What benefit does it help them to realize
who the actual owner is of that particular company?
So what an entity can do when you set it up...
Or an LLC, that is when you set it up with anonymity,
it can basically you protect you from harassment
or unwanted solicitations
or personal attacks from, say disgruntled tenants.
You know, as someone who's been working in this industry
for 23 years, and I serve as the trustee of
many, many land trusts
that have been set up across this country,
I receive at a minimum of at least six to 10 phone calls
every single day
and that doesn't even count the text messages
because people assume that the entities that I've created
for my clients are actually my entities
and I own the property held inside of them.
So by having anonymity,
what you're doing is you're creating the smoke screen
so people can't see through the entity
to see who the actual owners are.
So you don't have to deal
with the same harassing phone calls
that I get every single day
because you have a shield there to protect you.
Now the other benefit of having an anonymous
limited liability company is going to be asset protection.
So what do I mean by that?
Well, by setting up your LLC with anonymity,
it hides the fact that you own it.
So if somebody was considering bringing a lawsuit
against you, they may think twice
because if they ran an asset search,
they're not going to see anything in your name,
they're not going to think that you're worth going after.
Or if they do proceed against you
and they can't discover that you held assets
or business enterprises, they most likely will settle
for the insurance.
That is whatever your policy limits are,
if that's the nature of the claim.
I've had several clients involved in this type of situation
before where they had banks after 'em,
they've had creditors coming after 'em,
and these third parties who are bringing
these types of claims, they can't find any assets.
So they end up going into a settlement discussion.
And my clients have walked away
only giving up the policy limits of their policy
and not any of their assets
because they were not discoverable.
So the third benefit that comes from having
an anonymous company of course is identity theft.
I mean, it's a real problem right now
and if people don't know your personal details,
they wouldn't be able to take over your company
and say it's their company
because they can't look through it
to find out who the actual owner is.
So I think that's a valid reason to set up an entity
with anonymity.
And then the last point about having anonymity
I think is important it has to do with estate planning.
So this is the thing is that when you pass away,
if you do leave creditors out there that...
After you've passed on,
do you want 'em to know what assets you have
or do you want some disgruntled heir
to realize what you're worth
and possibly bring in a state claim against your estate
just to create problems for your actual beneficiaries
'cause they think if they push hard enough,
that they can force them to give up some money
even though they're not entitled to it?
I mean, it happens all the time in this country.
So the thing about using anonymity in our planning is there
is an estate planning benefit that when you pass away,
no one's going to know that you own these assets
so they can quietly pass to your beneficiaries.
And this is also beneficial
if those same beneficiaries
who are receiving the assets are involved,
let's say in any type of litigation
or there's a creditor claim out there,
then it doesn't hit the public record.
So just how anonymity worked for you,
it's also going to work for your beneficiaries
because when they receive it,
that anonymity passes on to them.
So I think those are four compelling reasons
why you should set up a structure with anonymity.
Now you need to balance that against
what you're looking to do,
and that's why I say there's some bad parts
about using anonymity or when you should not use it.
Now number one, when would I not want to use anonymity?
Well, you can't because the jurisdiction
in which you're creating the entity, it does not allow it.
So for example,
if I was setting up a limited liability company
in Washington state,
I absolutely cannot create an LLC
in Washington state with anonymity.
So the state law prevents it.
However, there's a workaround if you watch my channel,
you know that workaround in creating anonymity
for a company in a state that doesn't recognize anonymity
is to basically set up your LLC,
let's say this is in Washington,
and make sure that when you're creating that LLC,
you've first established a Wyoming LLC.
So when you create this limited liability company,
you make this LLC member managed,
okay, by your Wyoming limited liability company.
So when I set up my Washington LLC right here,
I tell the state of Washington,
"hey, this company down here is the owner.
So if you want to...
When you ask me to disclose who the members are,
I'm going to disclose that it's a Wyoming LLC."
Now the thing about Wyoming, of course,
as you know, if you follow my channel,
and if you don't, you should start following,
I got lots of videos on this,
that this Wyoming LLC that you own and you control,
Wyoming does not collect any information
on its members or managers.
So as long as we keep pointing businesses
back to this blue box,
well, it's going to keep my personal information
off of public record.
So that's one area in which you wouldn't be using anonymity
is if you didn't have a holding company there,
well, you can't do it.
Now, a second reason why it can be a challenge
for people to use anonymity
might be if you plan to go out
and buy real estate directly in the LLC
and you're using financing.
Now this can be problematic for people
in the context that when the bank
looks at a limited liability company
that's going to take title to the property,
what the underwriter's going to be analyzing
with this LLC is they want to typically see you down here
as the member,
since you're the one that's going
to give a personal guarantee on that loan.
Because the thing about lending and with these...
With lenders and and LLCs and taking title of the property,
what they're doing is they're assessing
who the actual owners of the LLC are going to be
or who they are.
I mean, it's no different than if you own the property,
you're taking title directly in your own name.
They want to assess their risk in making that loan.
Meaning do any of the owners of this LLC
have any potential skeletons in their closet,
financial issues, tax issues, creditor issues
that may impair their ability to repay this loan
or impact this property?
So when you're using anonymity
and you're setting up this LLC
to take title to the property like this
and you've got your blue box down here
like we just showed you,
when the bank or the underwriter does their due diligence
on this red box,
again, let's use that Washington example,
they're going to look at the Washington LLC
and it's going to point them to a Wyoming LLC.
So this just makes the process
a little more complicated for them
and it can slow down your lending...
Or the loan in which again, push back your closing.
So if you have a deal that you want to close in an LLC,
you have a lender that's willing to loan to the LLC
and you know you have to close by a specific date,
maybe it's a 14 day close 'cause you got a great deal...
Negotiated yourself a great deal,
be careful in closing in an LLC with anonymity
because it may screw that loan up and force you
to get an extension.
If the seller refuses to do it,
well, then you've lost your earnest money
and of course you've lost that deal.
So here's what I tell people.
If you're going to use an anonymity structure
and you're closing on real estate in the name of the LLC,
first talk to the lender you tend to work with.
Make sure they understand what you're intending to do
and you know ahead of time what they need as far as
the entity is concerned, what they need to see
in order to close to get them all of the information
that's necessary.
Okay, and so another problem in using an anonymity structure
like this is when you're running an active business.
So let's say I've created a limited liability company here
and this active business, it's a contracting business.
All right, so I got my trucks here
and I want to go out there and I want to work with the public.
Now, when you're dealing with third parties,
many times what they're going to do is
figure out whether or not you're a credible person
to work with, right, if they're going to hire you.
So you might have people
that look at your company
and they're expecting to see you
as the owner of that company.
But if they look at that company
and they don't know who the owner is,
because you've set up a blue box here,
so this company that we've set up in Washington,
like contracting company points to a Wyoming LLC,
maybe that makes the parties
that you're looking to conduct business with
a little nervous that they look at that company and think,
all right, well is there anything
that they're trying to hide?
And so I think in an active business context,
when you're working with individuals,
you shouldn't use anonymity to hide the fact
that you're the owner, especially when you're holding
yourself out as being the CEO, the president,
the manager of that company,
you're the owner of the company
where it's your reputation on the line,
let there be transparency there.
So in those types of situations,
I think it works just fine.
Do not use anonymity, let there be transparency.
But when it comes to holding assets,
that's a whole different story.
And so that's where I think anonymity should be used
when we're holding on to real estate, rental real estate
or flipping property or savings account
or private lending, things like that.
Go all in.
Active businesses,
it does not make sense.
I mean, take Anderson for example.
You all know that my partner Toby and I created this firm,
but how would that look if you looked us up to see,
"hey, who's really behind Anderson,"
and we had a complete anonymity shield there
that you wouldn't be able to see who owns it.
Those are the types of things
you have to take into consideration
when you're building your business
and whether or not you want to use anonymity.
Hey, if you got a lot out of this video,
be sure to put some comments down below
what you think about it.
If you have any questions,
you know I get on, I answer those questions
on a weekly basis.
And if you know anybody out there
that is not yet a subscriber to my channel,
hey, send 'em a link.
Tell 'em to sign up
because each time I cut a video you're going to be notified
of my latest release.
Alright, take care.
(upbeat music)
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