Delaware is home to more than a million corporations, meaning it has more corporations than actual human residents.
In 2012, The New York Times reported that a single building in Wilmington was the legal address of over 285,000 separate businesses. About 65% of Fortune 500 companies are incorporated in Delaware.
Many companies choose to incorporate there because of the “business-friendly” climate and extensive body of corporate law, or because Delaware has much lower corporate taxes than most states.
The New York Times says incorporating in Delaware “has enabled corporations to reduce the taxes paid to other states by an estimated $9.5 billion.” But it also happens to be one of the easiest places in the world to set up an anonymous company, making it a great place to establish an LLC to do business that you don’t want anyone to know about or you don’t want to be easily connected to.
Setting up a company in Delaware is extremely quick, easy and inexpensive. A person needs to provide more personal information to register for a library card than to register an LLC in Delaware.
The New York Times quotes the chief executive of a registration agent — a company that registers companies — as saying Delaware has “the most secret companies in the world and the easiest to form.”
A senior researcher at the Tax Justice Network quoted in its piece concurs, calling Delaware “the biggest single source of anonymous corporations in the world.”
There have been efforts to change this system, both federally and at the state level. In 2014, two laws were passed in Delaware that required companies registered in the state to provide the name of someone who knows who the legal owners are, but the legal owners can still be another anonymous company, and the information would only be available via subpoena.
The legislation didn’t require any information to be collected or made public about the “real” owners, often called the “beneficial owners.” Global Financial Integrity described the bills as “window-dressing,” saying they would “do nothing” to reveal more about who owns anonymous companies.
Former Michigan Sen. Carl Levin, D, tried repeatedly to pass a bill requiring states to simply ask for the name of the person establishing the corporation, but the effort failed every time.
Delaware’s government doesn’t appreciate critics using terms like “race to the bottom”: It has a “myths and facts” page on its website, where it claims that “Delaware has done more than most states to ensure proper transparency” and points out that “Delaware and the majority of states do require disclosure of the names of the natural persons who serve as directors.”
It doesn’t point out that this “natural person” can be someone at a company like Harvard Business Services. (Harvard Business Services charges $50 to list itself as the registered agent, which makes it impossible to find the real owners. In Delaware, that’s perfectly legal.)
One reason Delaware has resisted any change to this system: It’s a huge part of the state’s income. According to The New York Times, taxes and fees from these absentee businesses accounted for a quarter of the state’s budget in 2011.
Even though it’s the easiest place to set up an anonymous LLC, Delaware isn’t the only state whose laws allow corporate anonymity. Several states — like New Mexico, Wyoming and Nevada — don’t require public disclosure of a company’s owners, though they may compel the release of more information through subpoena.
And even if these states don’t provide complete legal protection through anonymity from lawsuits or federal investigation (though they can make it significantly more difficult for law enforcement), they can make it impossible for the public to look into who’s behind corporations.