Though there are many benefits to creating an LLC to manage your properties, this can open you up to LLC Identity Theft.
Creating an LLC for your properties is a good way to limit your liabilities, keep your properties separate from each other, enjoy pass-through taxation, and easily separate your LLC and personal expenses. These benefits allow you to reduce the risk of loss due to liability and can save you money on taxes. Sounds great, right? Unfortunately in recent years criminals have found opportunity in the system to commit fraud at your expense and through your LLC’s name.
Most states utilize a Secretaries of State Department to handle LLC registrations and filing processes within the state. These offices have limited authority under state law to investigate and confirm the validity of the filed information. Basically, they just confirm whether all the information was submitted or not.
Criminals are using the lack of in-depth investigation by the Secretaries of State departments in LLC filings to infiltrate the system to obtain and alter information. The criminals can then use their access to impersonate your LLC and conduct fraudulent activities in the LLC’s or LLC owner’s or officer’s names.
Here are a few ways criminals have used this vulnerability to commit LLC identity theft:
• Criminals can change an LLC’s registration to make them appear to be the president, secretary, officer, or managing member of the LLC. This gives them complete access to the LLC’s bank and credit account. This also allows them to make sales and purchases under the LLC’s name.
• Criminals can reinstate closed or dissolved LLCs. After an LLC is closed there is a window of opportunity for a couple of years (depending on the state) where it can be reopened. If the owner of a closed LLC isn’t paying attention a criminal can register to reinstate that LLC, giving them complete control of the LLC while keeping the previous LLC owner liable for the repercussions of their fraudulent activities.
• Secretaries of State departments are not the best at sharing information with other states. Knowing this, a criminal can target an LLC in one state and file for that LLC in a different state, assume their identity, and conduct fraudulent business in their name.
• Criminals can alter the address of the owners of an LLC on the registration, giving them access to sensitive information that is sent through the mail, such as tax documents, and bank statements. With this information, they can participate in a multitude of fraudulent activities at the expense of the LLC and the LLC’s owners.
• Criminals can identify LLCs that are in financial trouble or bankruptcy and alter the LLC’s information to identify them as a creditor, allowing them for compensation or even possession of the LLC’s properties.
These are just a few ways criminals have found to perform and profit from LLC identity theft and they are finding new ways every day. In order to protect yourself and your LLC, you need to stay vigilant, file your forms on time, pay attention and review your LLC’s information to make sure nothing has changed. Also, be sure to sign up for email alerts that can notify you if something is changed on your LLC.