By this time, I’m sure most of you are familiar with the Panama Papers scandal, which has made world-wide headlines. The confidential files of a law firm in Panama were hacked, resulting in the disclosure of known and unknown names from around the world. There is no doubt the anticipated privacy of forming entities or trusts in jurisdictions with little information about the parties made available was clearly abused by tax evaders, money launderers and the like. And it is interesting to note how little time it took for the press and various interest groups rush to conclusions that if there is some abuse, there must therefore be abuse by all, which is a conclusion clearly absurd and unsupportable. That is like saying that since some politicians are corrupt, then it follows that all politicians are corrupt. Well, maybe that one is a bad example. But you get the picture.

And sure enough, articles started popping up here in the U.S. about the evils of Delaware, Wyoming, Nevada and South Dakota and that these states are complicit in the evils of all tax abuse because they do not mandate the same degree of disclosure as other states. This seems a gross over-reaction to me. Here is an example. We had a client developing a new service. They did not want competitors knowing that they were working on this new service for obvious economic reasons. It was decided to form the entity in a state requiring less disclosure rather than more. And they were successfully able to bring the service to market without worrying about corporate snoopers combing the records of the Arizona Corporation Commission. The client wanted corporate privacy for a legitimate reason. What’s wrong with that?

Another advantage of using states like Delaware and Nevada is their quality and efficiency of service. In time sensitive transactions, they offer something that many states do not—certainty. Let me provide an example. If a company needs to effect a merger on a certain date and time without fail, then a state like Delaware offers that service. We recently had a client that needed to have a merger accomplished by a certain time and date. The merger was effected through Delaware because the Secretary of State’s office in Delaware offers a review of the documents intended to be filed for a modest charge so that any issues on documents delivered are flushed out before the actual delivery of the signed documents for filing. And Delaware offers same day, half day or one hour service at an additional charge for delivering documents and having them filed within that time frame. What this results in is the certainty that the transaction will be completed as planned.

We had another very recent situation where we were doing a corporate spinoff in Arizona. We delivered the paperwork to the Arizona Corporation Commission over two weeks prior to the intended effective date of the spinoff on an “expedited” basis. But it took over two weeks and basically at the last minute to learn the papers had been accepted for filing. What did that cause? Lack of certainty and unnecessary stress and anxiety.

So by castigating these particular states, the press and these special interest groups in the U.S. paint a very inaccurate and distorted picture of the corporate services provided by states such as Delaware, Wyoming, Nevada and South Dakota.

Disclaimer: This blog is for information purposes only. Legal advice is provided only through a formal, written attorney/client agreement.