If you’re a resident of California and you want to do business anonymously, you need to be careful how you set up your company structure.

The reason for this, is that the State of California has a very long-arm statute that says you’re “doing business” in the State of California for a variety of financial reasons, even if all your customers are located outside the State. The California Franchise Tax Board has a good article that summarizes the financial “thresholds” the State of California uses to determine if you’re “doing business in” the State.

Basically, the State says the following:

  • If your gross sales for the company is 25% or more for the State of California, or the gross sales exceeds a threshold (just over $600k) IN the State of California, even if under 25% of your overall sales
  • Or, the assets (real or personal property) owned by the company and located in the State of California is 25% or more of the total assets of the company, or the total assets exceeds a threshold (just over $60k) IN the State of California, even if under 25% of the assets owned by the company
  • Or, the payroll compensation paid is 25% or more in the State of California, or the California payroll compensation exceeds a threshold (just over $60k), even if under 25% of the overall compensation paid to folks outside of CA.

If the answer is “yes” to any of the above, then the State of California says you’re “doing business” in the State of California.

Why is this significant? Because, if you’re a resident of California, the odds are you will hit one of the thresholds if your business is even moderately successful. Because the State of California shares data with the IRS, the State of California will come calling, charging you back taxes, fees, penalties and interest which can add up if you manage to stay under the radar for a while.

The longest I’ve heard California residents avoiding the State is about 3 years. Most will hear from the State within 1-2 years.

Because the State of California requires registration of a company if it’s “doing business” in the State, anonymity can be difficult. Standard parent/child setups won’t work.

What will work, is registering a company (LLCs only, not a corporation) as “Manager Managed” and the Manager happens to be an Anonymous LLC that only manages the operating company in California.

How do you do this?

Setting Up a New Company to Do Business Anonymously in the State of California

If you’re starting your business for the first time, here’s the structure you want:

YOU/PARTNERS –> (own) an Anonymous LLC in NM as the Management Company

YOU/PARTNERS –> (own) a regular LLC in CA as the Operating Company

Why NM? Because it’s the least expensive to setup and maintain. Would another state, like WY or DE be better for asset protection? Not really, because the Management Company isn’t doing anything. It doesn’t own the Operating Company. It’s not handling money. It shouldn’t own any assets.

How does the regular LLC in CA remain anonymous? In the State of California, we need to disclose either owners (i.e. Members) or Managers. So, we disclose the Manager, which is itself an Anonymous company. This preserves anonymity.

Do you pay taxes in NM? No. The Management Company is not operating. It handles no cash. It doesn’t even need a bank account or a FEIN. No taxes to report, pay or file.

What’s the catch? There are a couple:

  • The State of California requires an address located in California that is not a Personal Mail Box (PMB) or PO Box — This address should not be publicly associated with you such that it may be used to trace back to you through public records. Fortunately, you can use this address for the New Mexico Anonymous LLC Management Company.
  • This only keeps ownership information off the Secretary of State website. If you’re a licensed professional, or have other filing / registration requirements personally, this may not be an effective strategy.

How do you get started? Order from these links:

Already Have a Company, and Need to Register in California Anonymously?

To figure out the right approach to do this, you need to first ask yourself, “Is your current company anonymous?” If not, then ownership information is already out there and to maintain your anonymity, you need to consider starting over. Or, contact us to discuss options.

If, however, you already have a company and it’s anonymous, the next question is, “Is your current company an Operating Company, such that it’s currently generating revenue?”

If the answer is “no”, then we recommend using your existing, anonymous company as a Management Company to a new LLC in California as your Operating Company. You merely need to form a CA LLC in the right way, specifying your existing anonymous company as the Manager, and you should be good to go. You can get started with this one link:

If the answer is “yes”, however, then there’s more work to do. Specifically, you need to register your current operating company as a “Foreign LLC” in California, but to avoid exposing ownership information, we need to indicate either an OWNER (i.e. MEMBER) or a MANAGER for your Operating Company. Our recommendation would be to setup a NM LLC as a “Management Company” for your Operating Company, then switch your Operating Company to a “Manager Managed” LLC if it isn’t already (which takes a bit of work – depending on whether it’s a Corporation or not, and what it’s status is), then foreign file the Operating Company as a Foreign LLC in the State of California.

A bit of work, depending on the status of the operating company. Here are the links for more information, pricing and to order for most of that:

Note that the above assumes your Operating Company is already a Manager Managed LLC. If it’s not, there’s a bit more work to do. Specifically:

  • If a LLC, but Member Managed, then you need to (1) Amend the Articles to make it a Manager Managed entity, and (2) you need a new Operating Agreement (we charge $29 for this).
  • If a Corporation, then you need to convert the entity to a LLC, although we wonder whether you didn’t answer the first question, “Is your current company anonymous?” correctly, because it’s very difficult to have an anonymous corporation. Contact us to discuss options.

13 Comments

  1. Hey Larry, Thank you for a clear and concise article. Regarding the first catch, can I use the address of my Registered agent in CA as “my” physical address for the filing?

    1. Hi Jon,

      Thank you for your comment. There are several factors that will affect whether or not that is an advisable route to take, including where the business is organized and what entity you are filing paperwork with. Your principal address must be a physical street address in California, generally speaking, which may be the same as the registered agent address. As with many issues, the answer is “it depends.” We have several options that may cater to your needs, including:

      Forming an anonymous LLC: https://www.l4sb.com/services/anonymous-llc/

      A 30 Minute Business Attorney Consultation: https://www.l4sb.com/services/attorney-consultation/

  2. Hi Larry,

    I think the issue that one may run into here is that when you setup the Anonymous LLC in NM as a Management Company, that NM LLC is also going to be deemed as “doing business in California” (since the owner is a California resident) and will be required to Foreign Register, pay its own $800 franchise tax fee, and also hand over its ownership information.

    It seems this second LLC/Manager Managed LLC setup is an infinite loop that won’t legally allow for anonymity.

    In other words, any secondary LLC you create is required to Foreign Register in California and fill out a Statement of Information leading back to who the owner is – All because the owner of the second out-of-state LLC is a resident of California.

    1. Hi, James.

      You are correct, in that IF you foreign file an entity in CA, you’re going to destroy anonymity.

      However, you are not correct in stating that the “NM LLC is also going to be deemed as ‘doing business in California’ (since the owner is a California resident)“. It takes more than mere ownership to force a company into CA like that. The California Franchise Tax Board has a rather good article indicating the thresholds related to what causes a company to be “doing business in California”. See https://www.ftb.ca.gov/file/business/doing-business-in-california.html.

      The trick is, to not cross any of the thresholds.

      A NM LLC acting as a Management Company only, without more (i.e. owning assets, moving money around, etc), cannot cross any of those thresholds.

      Clear as mud? Larry.

  3. Thanks Larry – To clarify, what if I already created a Wyoming LLC (Operating Company) and foreign filed it to do business in California?

    I haven’t yet submitted the Statement of Information to California yet, so I’m still technically Anonymous, but it’s overdue and I plan on submitting it in the next week or so.

    To achieve Anonymity, could I technically use the same setup you’ve described above by creating another Wyoming LLC (Management Company).

    This setup would differ slightly from your setup above because, yours:

    California LLC (Operating Company) —–> Wyoming LLC (Management Company)

    My setup:

    Foreign-Filed Wyoming LLC in California (Operating Company) ——> A second/separate Wyoming LLC (Management Company)

    I realize the way you recommend setting it up is the better/simpler way of doing things (especially since I’m a California resident), but I hadn’t read your article prior to doing this, so just trying to work with what I currently have.

    Doing it the way you’ve described (using a domestic California LLC as the Operating Company) would require that I dissolve my current Foreign-Filed Wyoming LLC, and then create a California LLC, which would require that I ask my clients to stop paying me temporarily 🙂

    1. Hi, James.

      Your approach could work, assuming the State of CA doesn’t require disclosure of ownership information on the foreign filing. Most states do require disclosure of ownership information for foreign filings, although I just looked up CA and the Secretary of State’s Form LLC-5 doesn’t appear to ask for ownership information, but I don’t recall whether there’s some other filing that will destroy the anonymity. Maybe not, but I don’t do this enough in CA to comment on — I’m sorry. Most of our experience is doing the direct LLC filings in CA.

      Larry.

  4. Hi Larry, thanks for the detailed article.

    Regarding, “If a LLC, but Member Managed, then you need to (1) Amend the Articles to make it a Manager Managed entity…”

    1. Why does the Operating Company need to be a Manager-Managed entity in California?

    Would it also work if it were setup where the Operating Company is a member-managed Wyoming LLC, which has one sole member; The sole member would be a different member-managed LLC in Wyoming.

    2. Would you need to formally amend the articles to go from Member-Managed to Manager-Managed for a Wyoming LLC?

    Wyoming doesn’t ask for the management structure when first creating the LLC. In that case, couldn’t I just amend my personal Operating Agreement?

    Thanks Larry!

    1. Hi, Kevin.

      If I’m understanding your questions correctly, you’re asking about setting up a WY-based structure. While you can certainly do that, the problem is, are you surpassing any of the thresholds that would put this WY-based structure as “doing business” in the State of California? If so, then you have a problem.

      That’s why we recommend the structure we do. Whether you surpass the legal thresholds or not doesn’t matter, the operating entity in CA will be anonymous (as we define it).

      Larry.

  5. Hi Larry,

    Wouldn’t the fact that the income of the Operating Company needing to flow to the Management Company (due to being a disregarded entity) automatically mean the Management Company is now “doing business in California”?

    My understanding is that LLCs are disregarded entities and the income of the child flows to its parent, so the income of the Operating Company in California would flow to the Management Company in Wyoming.

    Wouldn’t the fact that the Wyoming Management company is now receiving income (involuntarily, due to this flow) make it cross the threshold of “doing business in California”?

    Thereby triggering the need for the Wyoming Management company to now pay California $800 franchise tax, and foreign-file in California.

    1. Hi, James.

      I think you’re confusing two different concepts here: Ownership versus Management. In our recommendation, the CA LLC (the operating entity) would be owned by you, but managed by the NM LLC (the management entity). Because the management entity does not own the operating entity (only manages it), there are no profits/losses/revenue flowing from the CA LLC to the NM LLC.

      We want to avoid that, to prevent the NM LLC from “doing business in CA”, thereby necessitating registering in the State of CA and therefore losing its anonymity.

      Larry.

  6. Hi Larry,

    Thanks for the detail.

    I’m not surpassing any of the California thresholds;

    I was more curious about the flexibility in structure, and if the California Operating Company needs to be a Manager-Managed LLC, or if it can also be a Member-Managed LLC.

    Your article (which is amazing, and super helpful) recommends setting it up like this:

    1. Create Member-Managed LLC in Anonymous State
    2. Create Manager-Managed LLC in California
    3. When entering information via the California Secretary of State, would list the Anonymous State LLC as the Manager of the California LLC.

    I just was wondering if it could also be setup like this:

    1. Create Member-Managed LLC in Anonymous State
    2. Create Member-Managed LLC in California
    3. When entering information via the California Secretary of State (the part where it asks for disclosure of owners/members), would list the Anonymous State LLC as the sole-member of the California LLC.

    In the above example, it differs slightly because both LLCs are Member-Managed and rather than setting it up as a Manager-Managed LLC (Operating Entity) managed by a Member-Managed LLC (Managing Entity), it just lists the Anonymous LLC as the sole member of the California LLC.

    In this case as well, no thresholds would hopefully be crossed.

    Thanks,
    Kevin

    1. Hi, Kevin.

      I cannot think of any problems with what you propose, off the top of my head, although I do need to warn you: I am NOT a CA-licensed attorney. You’d do well to consult with a CA-licensed attorney to discuss this.

      With that said, there could be some practical issues in the future that could create problems for you. The biggest being that if CA tightens things further through statute or regulation, you could find yourself with a structure that requires the Anon LLC to be registered in the State of CA.

      Larry.

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