For some, it is important that their relationship with an LLC–either as member or manager–is kept private.  This post takes a quick look at how three popular states for the formation of LLCs–Nevada, Delaware and Florida–stack up on issue of privacy.

Nevada: Premium Privacy, Premium Cost.

Nevada promotes itself as offering strong privacy protection, but that privacy has a cost in dollars and aggravation.   Surprisingly, the Nevada Secretary of State’s website allows one to look up basic LLC information, including the names and addresses of managers.  To get around this, many Nevada LLCs use “nominee managers”–that is, the LLC’s members will appoint an unrelated person or entity to serve as manager (for a price) at the time the LLC is required to file its annual report.  Immediately afterward, the nominee manager resigns and the LLC members re-appoint the “real” managers.  All of this requires paying some person or entity to be manager and file the annual report, but it does mean that the identity of the real managers is not made public.

The State of Nevada does not share information with the IRS.  This would seem to be a good way to keep LLC membership private from Creditor No. 1, but its actually of limited value.  If a Nevada LLC intends to open a bank account, the IRS must be notified about the identity (including Social Security Number) of at least one member.  Also, if the Nevada LLC has US-based income (or  losses), it must file a US income tax return, including a Schedule K for each member.

The Nevada LLC Act permits the Operating Agreement to restrict how much information members can get about other members and managers, but few potential members are likely to agree to those arrangements.

In the final analysis, I think Nevada’s touted privacy protections are more hype than substance.

Delaware: Good Privacy for Less.

The Delaware Secretary of State does not publish the identity of LLC member and managers on the web.  Therefore, the whole nominee-director-shuffle is unnecessary for Delaware LLCs.  Delaware, like most states, does share information with the IRS, but as discussed above, it’s highly unlikely that the identity of the members can be kept from the IRS (certainly if the LLC is obeying federal tax law).

If the goal is to simply avoid publishing the identify of members and managers on the web, a Delaware LLC is a good choice.

Florida: Not So Private.

There’s really no privacy protection for the members and managers of a Florida LLC.  The Florida Secretary of State’s website reports the name and address of both members and managers, which are required to be reported annually.  Not that this is necessarily a bad thing.  Especially for an operating Florida LLC, it’s quite convenient for banks, vendors, customers, etc. to be able to check on-line for the managers who are able to act on behalf of the LLC.  The alternative is to provide interested parties whatever assurance is necessary so they can be certain about who can bind the LLC.  However, this doesn’t help in the privacy category.

If privacy is a concern, a Florida LLC is not the best option.

Does Privacy Matter?

Privacy probably matters less than one might think.  Privacy is generally desired as a deterrent to lawsuits, but it won’t deter any plaintiff that is minimally determined.  Once sued, the Registered Agent for the LLC–the identity and address of whom is public for a Nevada, Delaware, or Florida LLC–will be legally obligated to disclose information about the members and managers of the LLC or else face contempt (and possibly jail).