LLCs as "shell companies" where I am the only member of an LLC that in turn is the only member of another LLC doing the business

Asked over 1 year ago - San Francisco, CA

If I intend to open a start-up company as an LLC, and I would be the only owner/member, AND foresee this company being the defendant in a lot of litigation because of the nature of its industry (nothing illegal, but an area where a lot of emotion and money is at stake), should I form 2 LLCs, one to actually do the business and another just to be the sole member of the first LLC, where I would be a member only of the second LLC whose only function is to be the owner/managing member of the first LLC?

I am interested in protecting my privacy as well as my assets. The LLCs would never "go public" or seek a venture capital or even a loan. I would fund it entirely with my own money.

I would form the first LLC in California, where I reside and do business. Should the second LLC be here too?

Attorney answers (5)

  1. Dana Howard Shultz

    Contributor Level 20


    Lawyers agree


    Best Answer
    chosen by asker

    Answered . It strikes me that it would be better to have one LLC plus lots of insurance (commercial general liability plus whatever additional insurance is appropriate for your type of business).

    Furthermore, if you have sufficient assets at risk, you should retain a specialist in personal asset protection.

    This information does not constitute legal advice and does not establish an attorney-client relationship.
  2. Robin Mashal

    Contributor Level 19


    Lawyers agree


    Answered . Disclaimer: The materials provided below are informational and should not be relied upon as legal advice.

    Attorney Shultz provides you an excellent response. Having multiple layers of LLCs does not necessarily protect your assets, or your privacy, for that matter. If there is certain pending liability, and you intend to transfer assets to an LLC, that may also constitute a fraudulent transfer, so you will be wise to consult an attorney to assist you with these matters.

  3. David Andrew Mallen

    Contributor Level 14


    Lawyers agree


    Answered . Lawyers and others who do asset searches have sophisticated programs to link people with companies. It looks like you are trying to hide something when people do this.

    David A. Mallen offers answers on Avvo for general information only. This offer of free, general answers is not... more
  4. Douglass S Lodmell


    Contributor Level 13


    Lawyers agree


    Answered . From my perspective as an asset protection attorney, remaining anonymous is not a relevant issue when setting up a legitimate and sound asset protection plan. As my colleagues already pointed, during litigation, court may force you to disclose all relevant information regarding your net worth.

    An LLC is an excellent tool for insulating the risk generated by a business. However, it will not protect you neither your personal assets (bank and brokerage accounts, your primary residence, investment real estate, etc.). Everything depends on whether your total net worth is an attractive target for c contingency fee attorney. A plaintiff may always try to pierce the corporate veil by holding you personally liable by theories as negligence or gross negligence.

    Depending on the value of your business, the revenue it generates and the total value of your personal net worth, you may want to combine the LLC that holds your business with a legal tool that was specifically designed for asset protection purposes: a Family Limited Partnership filed in a state with strong charging order rules such as AZ.

    You definitely need to schedule a consultation with an attorney that has specific expertise in the area of asset protection planning

    Douglass Lodmell is the nations #1 Asset Protection attorney and has clients in all 50 states, protecting over $4... more
  5. Gary Stephen Brown

    Contributor Level 10


    Lawyers agree


    Answered . When starting a business in an area where lawsuits are expected, take the time to find a good lawyer to help you avoid them. Lawsuits are expensive. When you figure out why people are suing you can design systems to increase communication to avoid the suits. As for insulation through multiple entities, it is a waste of money. You set up one entity and operate it properly. Again, make sure you have a competent attorney to guide you. As explained in other answers, when push comes to shove, you will be forced to expose your holdings completely.

    The advice provided is in good faith but not a guaranty of accuracy under all circumstances.

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