THE PLUMBING: Six Mechanisms. 425 Years. The Answer to "How Is This Legal?"
Post 1: The Oldest Pipe — Elizabeth I. 1601. The founding irony.
Post 2: The 1921 Room — Stepped-up basis + 1031. Born together. 104 years intact.
Post 3: The Wildcatter's Gift — Carried interest. 20% since Eisenhower. UK: 34%.
Post 4: The Race to the Bottom — Delaware. Venice to Wilmington. ← YOU ARE HERE
Post 5: The Invisible Subsidiary — Check-the-Box. The regulation nobody voted for.
Post 6: The Island — Cayman Islands. $6 trillion. $100 billion per year.
Post 7: The Complete Stack — All six. One deal. Everything legal. Everything documented.
Post 8: July 4, 2025 — The OBBBA. The Magna Carta moment. Pipes made permanent.
When Water Asset Management paid $100 million for 12,793 acres of Arizona groundwater in July 2024, the buyer of record in La Paz County public records was Emporia III LLC — a Delaware limited liability company. Delaware requires no public disclosure of LLC membership, management, or beneficial ownership. No names. No addresses. No connection to the New York hedge fund that structured the purchase. The public record available to the 17,000 residents of La Paz County — whose aquifer is now held by this entity — contains exactly three pieces of information: the entity name, the purchase price, and the acreage. That is all Delaware law requires. That is all Delaware law has ever required. This is not an accident of drafting or an oversight by a legislature that didn't anticipate the problem. It is the deliberate design of a state that has spent 127 years competing for corporate registration revenue by offering maximum entity protection and minimum disclosure obligation. Delaware did not invent this competition. Venice was running the same race in the 13th century — offering favorable legal structures to attract the merchant capital that funded its empire, in exchange for the fees and economic activity that capital generated. The race has been running for 700 years. Delaware is currently winning. Emporia III LLC is currently holding Arizona groundwater. The beneficial owners of the entity that controls the water: unknown to the public record. This is the pipe that makes all the others invisible.
The 700-Year Race: Who Has Won It and How
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1300s
Venice
The commenda — proto-limited liability for trading voyages. Investors fund without risking entire fortune. Legal secrecy for depositors. Maximum merchant protection. Minimum noble obligation.
1880s
New Jersey
First U.S. state to offer permissive incorporation. "Mother of Trusts" — Standard Oil, U.S. Steel incorporate here. Then Governor Woodrow Wilson tightens rules. NJ loses the race to Delaware.
1899
Delaware
General Corporation Law rewritten. Maximum flexibility, minimum regulation, no public ownership disclosure required. Within two years: more incorporations than any other state. The race's current winner.
1960s–
Cayman Islands
Zero corporate tax. Zero income tax. No reporting requirements. The offshore version of the same race. $6 trillion in assets. Post 6 documents this jurisdiction in full.
2024
Emporia III LLC
$100M Arizona groundwater. Delaware LLC. Beneficial owners: not in the public record. La Paz County residents: cannot find out who owns their aquifer. The race, at mile 700.
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What Delaware Actually Sells
Delaware is a state of approximately one million people. It has a modest industrial base, a university, two minor-league baseball teams, and the distinction of being the second-smallest state by area in the country. It is also the legal home of more than two million corporations, LLCs, and other business entities — including a majority of Fortune 500 companies, the funds that hold most U.S. private equity, and an unknowable number of entities whose beneficial owners have never been disclosed to any public record.
What Delaware sells — the product that generates $2 billion per year in franchise tax revenue and funds 25% of the state's entire operating budget — is a legal environment with six specific characteristics that distinguish it from every other U.S. jurisdiction:
No public beneficial ownership disclosureAn LLC can be formed and operated without disclosing who owns it to any public record.
Emporia III LLC holds $100M in Arizona groundwater. The owners: not in the public record available to the affected community, the press, or researchers.
Private equity funds, wealthy individuals, foreign nationals, and any entity seeking to hold assets anonymously.
No requirement to list members or managersThe formation document (Certificate of Formation) requires only a registered agent address in Delaware — not the names of anyone involved.
A Delaware LLC's public filing contains: entity name, registered agent, date of formation. That is the entire disclosure. Formation can be completed online in minutes with no identity verification.
Anyone who wants to hold assets, enter contracts, or conduct business without leaving a public trail of ownership.
Court of Chancery — specialized business courtA dedicated court of equity with judges who specialize exclusively in business law. No juries. Predictable outcomes. Sophisticated precedent.
Legal certainty for complex business structures. PE fund agreements, merger disputes, shareholder conflicts — all resolved in a court designed specifically for commercial entities. Speed and expertise unavailable in most state courts.
Large corporations and funds that need predictable legal outcomes for complex transactions.
Flexible LLC operating agreementsDelaware LLCs can be structured almost any way the members want — profit splits, voting rights, management authority — with minimal statutory constraints.
PE fund structures, tiered ownership arrangements, and complex economic sharing agreements can be implemented without running into statutory restrictions that apply in other states.
Fund managers structuring carry arrangements, tiered LP/GP agreements, and complex co-investment vehicles.
No state income tax on out-of-state operationsDelaware does not tax income earned outside Delaware by entities incorporated there. The franchise fee is the primary revenue mechanism.
A Delaware LLC that holds Arizona water rights pays Delaware franchise fees but no Delaware income tax on Arizona water revenues. The state where the revenue is generated — Arizona — taxes the activity. Delaware takes a registration fee and provides the legal structure.
Any entity operating nationally or internationally that wants minimal state-level tax on its operations.
Registered agent privacy layerEvery Delaware entity must have a registered agent in Delaware — but the agent's address becomes the entity's public address. Many agents serve thousands of entities.
A single address in Wilmington may be the registered address for hundreds or thousands of separate entities. The address provides a legal presence without disclosing anything about who actually controls the entity.
Any entity that wants a legal presence in Delaware without revealing its actual location or operators.
What the Public Record Shows — and Doesn't
The Emporia III LLC Public Record — Everything Available to La Paz County Residents
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Entity name (Delaware Division of Corporations):
Emporia III LLC
Entity type:
Delaware Limited Liability Company
Date of formation:
Available in Delaware records
Registered agent address:
A registered agent address in Wilmington, Delaware — shared with potentially thousands of other entities
Who owns Emporia III LLC:
NOT IN THE PUBLIC RECORD
Who manages Emporia III LLC:
NOT IN THE PUBLIC RECORD
Who provided the $100 million in capital:
NOT IN THE PUBLIC RECORD
Which institutional investors are LPs in the fund:
NOT IN THE PUBLIC RECORD
What the entity plans to do with the groundwater:
NOT IN THE PUBLIC RECORD
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The residents of La Paz County, whose aquifer is now held by Emporia III LLC, can find the entity name in their county assessor's deed records and the Delaware Division of Corporations filing. They cannot find, through any public record, who owns the entity that owns their water. This is not a gap in the system. It is the system. Delaware's product is precisely this: legal existence without public accountability for beneficial ownership.
🔥 Smoking Gun #1
Delaware's Franchise Revenue Is 25% of Its State Budget. Reform of Delaware Anonymity Is Fiscal Suicide for Delaware Legislators. The State Has Structurally Captured Its Own Reform Process.
Delaware is not a corrupt state in the conventional sense. Its legislators are not taking bribes to maintain entity anonymity. The mechanism is more elegant and more durable than corruption: Delaware has structured its own fiscal survival around the product that anonymity enables.
The arithmetic: Delaware collects approximately $2 billion per year in franchise taxes and fees from corporations and LLCs registered in the state. This represents approximately 25% of Delaware's total annual operating budget. The state has a population of approximately one million people. Without the franchise revenue, Delaware would face a fiscal crisis requiring either significant tax increases on its residents or dramatic cuts to state services.
The reform problem: Any Delaware legislator who proposes meaningful beneficial ownership disclosure requirements — making LLC owners publicly identifiable — risks triggering entity migration. If Delaware requires what Wyoming, Nevada, or other competing states do not, some fraction of the 2 million entities will re-domicile in those states. Every entity that leaves takes its franchise fee with it. A meaningful exodus could cost Delaware hundreds of millions in annual revenue. The state cannot afford to win the accountability argument if winning means losing the revenue.
The federal intervention that partially worked: The Corporate Transparency Act (CTA), enacted in 2021 and effective January 1, 2024, required beneficial ownership disclosure to the Financial Crimes Enforcement Network (FinCEN) for most U.S. entities — including Delaware LLCs. The disclosure was to FinCEN, not to the public. Law enforcement could access it. Journalists, community members, and affected residents could not. The CTA was subsequently challenged in court, with multiple federal courts finding it unconstitutional. By early 2026, enforcement remains uncertain and contested. The public beneficial ownership registry that would make Emporia III LLC's owners visible to La Paz County residents: does not exist.
Delaware has structured its fiscal dependence on the very revenue stream that requires anonymity to generate. Reform of Delaware entity anonymity is not blocked by corruption but by arithmetic: the state cannot afford to mandate what its competitors do not require. The mechanism that enables Emporia III LLC to hold $100 million in Arizona groundwater without disclosing its owners is the same mechanism that funds Delaware schools, roads, and state services. The 17,000 residents of La Paz County cannot find out who owns their aquifer because Delaware needs the franchise fees more than it needs the accountability. The race to the bottom funds the state that won it.
Delaware's Fiscal Dependence on Entity Anonymity — The Numbers
Delaware population (2024)~1,000,000
Corporations/LLCs registered in Delaware2,000,000+
Registered entities per resident2:1
Annual franchise tax and fee revenue~$2 billion
Fraction of total state operating budget~25%
Fortune 500 companies incorporated in Delaware~68%
Public disclosure of LLC beneficial owners requiredNONE (public record)
Corporate Transparency Act (2021) — public disclosure?NO — FinCEN only, not public
CTA enforcement status (early 2026)Contested — multiple courts found unconstitutional
Competing states (anonymity): Wyoming, Nevada, New MexicoAll offer similar or greater opacity
UK beneficial ownership registry (public)Yes — Companies House since 2016
EU beneficial ownership registries (public)Yes — most member states
U.S. public beneficial ownership registryDoes not exist
"More than half of the world's ten largest companies are incorporated in Delaware. Delaware has a smaller population than most of those companies have employees."
— The asymmetry at the heart of the race to the bottom, 2026
🔥 Smoking Gun #2
The UK Has Had a Public Beneficial Ownership Registry Since 2016. The EU Has Mandated Them Across Member States. The United States — Where the Race to the Bottom Was Won — Has Nothing Comparable for the Public.
The contrast between U.S. and international approaches to beneficial ownership transparency is the clearest demonstration in this series that the mechanism is not inevitable — it is chosen.
The UK: Companies House maintains a public register of beneficial owners — persons with significant control — for all UK companies. Available to anyone. Searchable online. Free. If Emporia III LLC were a UK entity, La Paz County residents could look up its beneficial owners in a public database maintained by the government. The UK implemented this in 2016. A decade later, enforcement remains imperfect — false or outdated information is a documented problem — but the principle of public disclosure is established in law and practice.
The EU: The Fourth Anti-Money Laundering Directive (2015) and Fifth AMLD (2018) required EU member states to establish beneficial ownership registries accessible to persons with legitimate interest. The Court of Justice of the EU ruled in 2022 that unrestricted public access violated privacy rights — a partial setback — but registries accessible to journalists, researchers, and persons with demonstrated legitimate interest remain in operation across most member states.
The United States: The Corporate Transparency Act of 2021 required beneficial ownership disclosure to FinCEN — a financial crimes enforcement agency within the Treasury Department. The disclosure was not public. Law enforcement could access it with appropriate legal process. Journalists investigating a $100 million groundwater acquisition in Arizona could not. Multiple federal courts found the CTA unconstitutional on various grounds. Enforcement in early 2026 remains uncertain.
The gap: The United States is simultaneously the world's largest economy, the host jurisdiction of the most significant private capital markets, and the country with the most permissive beneficial ownership disclosure regime among major democracies. This is not an accident. It is the outcome of 127 years of competitive pressure that Delaware won by offering what international financial centers offer: maximum protection, minimum disclosure, stable legal framework. The race to the bottom that Venice started in the 13th century reached its current endpoint in a small state on the mid-Atlantic coast that collects $2 billion per year from entities whose owners it does not require to identify themselves.
The UK has known who owns its companies publicly since 2016. The EU has moved in the same direction. The United States — where $100 million in Arizona groundwater can be held by an entity whose owners are invisible to the affected community — chose a different path. The choice was not made by accident. It was made by a state whose fiscal survival depends on making it, sustained by a political economy in which the beneficiaries of anonymity have the resources to fund the continued availability of anonymity. La Paz County cannot find out who owns Emporia III LLC. The UK could find out if it were a British company. The difference between those two outcomes is 127 years of Delaware winning the race that Venice started.
✓ The Full Account: The Legitimate Case for Delaware Corporate Law
Legal certainty has genuine economic value. Delaware's Court of Chancery — a specialized business court with no juries and highly expert judges — provides predictability that matters enormously for complex commercial transactions. When two PE firms dispute the terms of a merger agreement, or when a minority shareholder challenges a transaction, the availability of a sophisticated court with deep precedent is not a trivial benefit. Many practitioners argue that Delaware's legal infrastructure has made U.S. capital markets more efficient and lowered the cost of capital for businesses that operate under its jurisdiction.
Regulatory competition has produced some beneficial outcomes. The pressure that Delaware's permissive incorporation law placed on other states contributed to the development of modern corporate law frameworks that balance shareholder rights, board authority, and stakeholder interests. Not all of the outcomes of this competition have been negative.
Privacy has legitimate uses. Not every LLC seeking anonymity is hiding a problematic acquisition. Small business owners, domestic abuse survivors, public figures, and people with legitimate security concerns have real reasons to want their business ownership to remain private. A blanket public disclosure requirement creates genuine risks for legitimate users that must be weighed against the transparency benefits.
The honest accounting: Delaware's corporate law infrastructure has produced real economic value. Its anonymity provisions have also enabled Emporia III LLC to hold $100 million in Arizona groundwater without any public accountability for who is making the decisions about its eventual use. Both things are true. The question is whether the balance between those outcomes — legal certainty and legitimate privacy on one side, accountability for acquisitions of public resources on the other — is correctly set. The UK's public registry suggests a different balance is possible without destroying the legal infrastructure that has genuine value.
The Finding — Post 4
"Delaware has been winning the race to the bottom for 127 years. Its prize: $2 billion per year in franchise revenue, 25% of the state budget, and a fiscal dependence on entity anonymity so complete that reforming it is arithmetic suicide for Delaware legislators. The people of La Paz County cannot find out who owns the entity that holds their groundwater. The UK could tell them. Delaware won't. The race that Venice started in the 13th century reached its current endpoint in a small mid-Atlantic state whose entities now outnumber its residents two to one."
Next: Post 5 — The Invisible Subsidiary. In 1996, the Treasury Department issued a regulation — Check-the-Box — that allowed companies to elect their own tax classification. A subsidiary in the Cayman Islands could be "checked" into nonexistence for U.S. tax purposes, making its income disappear from the U.S. tax base entirely. Henry VIII tried to close the same mechanism in 1535 with the Statute of Uses. It partially worked. Check-the-Box reopened it 461 years later. By regulation. Without a vote of Congress. The Joint Committee on Taxation called it one of the largest unintended revenue losses in modern tax history. It is still operating.
METHODOLOGY — POST 4: All figures primary-sourced. Delaware General Corporation Law (1899): confirmed via Delaware Division of Corporations history and Delaware legislative records. Delaware franchise revenue ~$2B annually, ~25% of state budget: confirmed via Delaware Department of Finance Annual Reports (2022–2024). Delaware registered entities 2M+: confirmed via Delaware Division of Corporations annual reports. Fortune 500 incorporation in Delaware ~68%: confirmed via Delaware.gov official statistics. UK Companies House public beneficial ownership registry (2016): confirmed via UK Companies Act 2006 as amended by Small Business, Enterprise and Employment Act 2015. EU Fourth/Fifth AMLD: confirmed via Official Journal of the European Union. CJEU ruling on unrestricted public access (Case C-37/20, WM and Sovim SA, November 2022): confirmed via CJEU press release and judgment. Corporate Transparency Act (2021), effective January 1, 2024: confirmed via FinCEN official guidance. CTA constitutional challenges — multiple federal courts: confirmed via National Small Business United v. Yellen (N.D. Ala., 2024) and subsequent circuit decisions. Venice commenda structure: confirmed via academic historical sources including Milgrom, North & Weingast, "The Merchant Guilds and Trade" and primary Venetian commercial law scholarship. New Jersey "Mother of Trusts" era and Woodrow Wilson reform: confirmed via New Jersey legislative history and Grandy, "New Jersey and the Fiscal Origins of Modern American Corporation Law" (1989). Emporia III LLC Delaware filing: confirmed via La Paz County Assessor records and Delaware Division of Corporations. Registered entities exceeding population (2:1 ratio): confirmed via U.S. Census Bureau (Delaware population) and Delaware Division of Corporations total entities.
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