How to Maintain Member Privacy in an LLC
For many business owners, privacy is an important consideration. There are various reasons why owners may prefer to keep their membership rosters private when forming an LLC. The most common situation we come across is where the person doesn’t want others to know about his or her investment in a certain type of company.
If privacy is a concern, here are two steps you can take when organizing your LLC in order to protect the identities of the company’s members.
Step 1: Have a Nonmember Organize the LLC.
To form a limited liability company in California, you’ll need to file articles of organization with the Secretary of State. While the articles don’t require you to disclose the names of the members, they do require the name and signature of the person who organized the LLC. The filed articles will be available to the general public, so the organizer will have his or her name publicly associated with the company.
But there’s no requirement that the organizer be an LLC member. Therefore, you can ask someone other than a member (like an attorney or a nonmember manager, if applicable) to sign as the organizer. By doing so, you can keep the members’ names off of the articles of organization.
Step 2: Form the Company as a Manager-Managed LLC.
California limited liability companies come in two basic flavors: member-managed, and manager-managed. In a member-managed LLC, all LLC members participate in managing the company’s operations. Manager-managed LLCs, by contrast, are managed not by the members, but instead by one or more managers who are appointed by the members.
The articles of organization require you to designate which type of LLC the company will be. And in order to keep the names of the members from the public, the LLC will have to be manager-managed.
Here’s why. Within 90 days of the date the LLC is established, it will have to file its first statement of information with the Secretary of State. The statement of information is a form (filed biennially) in which the state asks you to disclose some basic details about the company. And it requires you to disclose the names and addresses of all members, but only if the LLC is member-managed. If the LLC is manager-managed instead, then it only needs to disclose the name and address of the company’s manager. The manager may, but isn’t required to be, a member of the LLC. So if the LLC is manager-managed, then the members’ names don’t ever need to appear in the statements of information, or any other documents filed with the Secretary of State.
With all of this being said, there are two important caveats. First, while a manager-managed LLC may have advantages for members who want privacy, that management structure won’t be appropriate in all cases. If the LLC’s members want an active role in managing the company and don’t want to delegate those duties to a manager, then a member-managed LLC is going to be the better option.
Second, there are means other than Secretary of State records through which third parties can find out the names of an LLC’s members. For example, if the LLC is involved in litigation, the company’s membership roster could be requested as part of the discovery process.