Legal question (but not advice)

All right, this was in fiction, specifically in John Grisham’s The Racketeer. A guy sets up a corporation so that there is absolutely no way ever to trace it back to him. I don’t have the book in front of me but as I recall he sets up one corporation, which then sets up another corporation as a Delaware corporation (I know there’s something special about Delaware), and he’s off. So to speak.

So the question is, in real life in the United States is this even possible? I say this as a person who used to be a corporate paralegal and who chased down any number of companies, and sure, there are ways to make it harder to find out (Company A owns Company B, Company B owns a part interest in Company C, etc.) but eventually you can find out individuals–or maybe I just didn’t encounter all possible permutations (quite possible).

Also, what’s so special about Delaware? And I notice a lot of corp.s (here in Colorado) who are now Nevada corporations. Is Nevada special, too?

Yes, it is possible to set up a corporation to hide the beneficial ownership. It relies upon a lack of due diligence on someone’s part during the corporation registration process. The easiest description is that incorporation paperwork is filed and accepted in the name of a fictitious individual and no one checks for identification to prove the identity of the alleged beneficial owner.

Such lack of due diligence has proven easier to find in the US than in some offshore jurisdictions ostensibly known for hiding assets.

Can you ask a mod to clarify your subject header?

Re: forming a corporation and remaining anonymous–it is absolutely possible to do that. Nevada is a popular state to incorporate for this reason. See http://www.nevadacorporationsonline.com

Re: forking a corporation in Delaware–Delaware has a long history of adjudicating disputes related to corporations, and their corporate governance statutes offer lots of flexibility. So, they became the default. Most law schools teach Delaware law in corporate law classes (and then discuss any differences under other states’ laws). There’s no US federal income tax reason to incorporate in Delaware v. any other state.

If ownership were contested, how would the real owner verify in court that he or she is the owner?

Anonymous from casual observers, the press, etc.?
Anonymous from someone with a civil suit or legal papers serving?
Anonymous from law enforcement criminal investigations?

Those are very different things.

Of course, a fictitious identity for activities of questionable legality could be a crime in itself. I’m sure the law must ask for proper ID, meaning bypassing that law must be a crime by itself?

The easiest way I think is to have one of the links in the chain be a private trust. I’m not sure, but I don’t think that there are reporting requirements regarding the ownership of the trust and the admin would be bound by fiduciary duty (or attorney client privilege if he/she also happens to be the trust lawyer).

Does Attorney-client privilege cover identity of the client in the event of a criminal investigation?

At very least, I imagine the attorney would be obliged to pass on served court papers?

Once the attorney has served, say, a subpoena then failure to show up means you are a fugitive (or in contempt of court); does that mean if you have any contact with your atorney (s)he must turn you in? (Privilege does not apply to on-going or planned crimes?)

I don’t think it’s as easy as people think to bypass the legal system, unless you detour through an uncooperative foreign country.

Well, in that case, Belize is the jurisdiction of choice. They won’t even let you bring actions for fraudulent conveyances.

There are generally quite a few state tax benefits from upping sticks and moving your nominal headquarters to Delaware, though (beyond the flexibility you mention in arranging your limited liability entity).

Well, anyone armed with the power of subpoena can “drill down” and find out. But yes, it does take time and some states make it harder.