A limited liability company or LLC is the best way to register a startup in the US. Typically, an LLC is like the middle child between a sole proprietorship and a corporation. It is neither one nor the other but has some of the best elements of both such as tax benefits.
The problem is that states have different rules for LLCs, and some are more business-friendly than others. Wyoming is particularly supportive of LLCs, even for non-US citizens. However, it is not all roses. There are still Wyoming LLC pros and cons you should consider when registering your business there.
Suppose you are a non-US resident considering establishing a business in the US or a Wyoming resident wanting to try entrepreneurship. In that case, an excellent option is to form an LLC in Wyoming. Before you do, however, you should find out more about the pros and cons of an LLC in Wyoming.
Most businesses are sole proprietorships because they do not need registration with the state. However, the assets of the small business owner are indistinguishable from that of the business in sole proprietorships. They carry personal liability, which can be problematic when the business runs into debt or becomes the subject of a lawsuit.
An LLC is a legal business structure designed to protect personal assets, such as the real estate of the business owner from the liabilities and debts of the company.
While the LLC structure may resemble a corporation more than a sole proprietorship, LLC members are still sole proprietors or partners from a tax perspective. An LLC has pass-through tax, which means members pay income tax individually on their earnings from the business. The LLC itself is not subject to state income or business tax.
The great thing about Wyoming is the tax benefits. It does not impose income taxes. Wyoming LLC members effectively do not pay any state income taxes at all, which can mean thousands of dollars saved. Wyoming does have a 4% sales tax, and counties can impose a 1% general tax, but that is for everyone, in business or not. However, these state tax rules do not exempt LLC members from federal income taxes.
As the first state to adopt LLC statutes in 1977, Wyoming boasts the most extended LLC case law history in the US. Because the state continually improves its rules and regulations for LLCs, it is also one of the strongest. The initial and annual fees the state government charges for LLCs are also comparatively low.
It is also worth noting that Wyoming LLCs filed online are accepted immediately as long as they meet all requirements. Below are some of the pros to convince you to form an LLC in Wyoming.
Wyoming has strict privacy laws to protect the identities of LLC owners and managers. The Secretary of State does not require the names of LLC members and managers to appear in the Articles of Organization to start an LLC. In addition, since an LLC in Wyoming does not pay income or business taxes, the state does not get access to the personal information of its members through tax filings.
Members already get protection from company liabilities through the LLC, but that does not stop creditors or plaintiffs from contacting them anyway. By not requiring LLCs to provide personal identifying information, Wyoming keeps LLC members safe from harassment.
It may occur to some people that companies desiring such privacy might be attempting to run their business unlawfully, but that is hardly true. People have a right to their privacy in all matters, including their financial affairs. Additionally, business matters have nothing to do with the personal lives of company owners, so publishing personally identifying information about them serves no purpose.
To protect LLC members, Wyoming state law legally allows a registered agent to act as a manager on their behalf. The Articles of Organization lists the registered agent as the LLC manager instead of the names of the LLC members. However, the actual control over the LLC remains with the members. That is, unless deemed otherwise by the consensus of the members.
The nominee director or manager accommodation protects members from unsolicited emails or mail, summons, or harassment. Anyone pursuing a lawsuit against the company cannot name LLC members as defendants.
Additionally, Wyoming law has a charging order protection for LLCs. A charging order is a court-ordered lien (right to keep possession) allowing a creditor to seize assets or payouts from a debtor’s business to regain their money. A charging order protection means the creditor cannot force the member to sell LLC assets or ownership in the company to pay off the debt. Only four other states in the US extend this legal protection, namely Alaska, South Dakota, Nevada, and Delaware.
A Wyoming LLC is anonymous because Wyoming privacy laws do not require member names to be put on the public record and allow a registered agent to represent the company. To add another layer of anonymity, you can even set up a mail forwarding address for the company so that no mail goes directly to you.
No one, not even the state government and tax office, knows the real owners of an LLC. The argument is there is no benefit to publicizing personal information when the LLC operates as a separate entity from its members.
Few Regulations and Formalities
Wyoming LLCs enjoy a lot more flexibility regarding regulations than corporations. They do not have to comply with the same rules under corporate law, which need to be run by directors to make major decisions and officers to run the business daily. Wyoming also does not impose a minimum capital contribution for LLCs.
LLCs have no shareholders or board members, so they have less accountability and no need to hold shareholder meetings. The manager does not have to be an LLC member and may have complete authority to act for the company.
In addition, LLC members do not have to be residents of Wyoming or even US citizens. Owners can handle everything required to form an LLC in Wyoming online, and an operating agreement is not required.
However, that is not to say Wyoming LLCs are not subject to any regulations. All Wyoming LLCs have to submit an annual report to the Secretary of State on the first day of the LLC’s anniversary month to stay in good standing.
The annual report carries a license tax of $60 or two-tenths of one mill on the dollar of the company’s assets in Wyoming, whichever is higher. One mill is one-thousandth of a dollar per $1 of assessed property value.
Failure to submit the report and pay the tax within 60 days can lead to the dissolution of the LLC.
The LLC may also need local and state licenses, depending on the nature and location of the business. For instance, a general contractor in Afton will have to apply for a municipal license and pay a franchise tax to operate in that city. An appliance retailer with a physical store in Wyoming will also be subject to sales taxes.
Business owners can form an LLC in Wyoming and pay relatively low fees. They will need to pay a $100 fee (add $2 convenience fee if online) to file an LLC with the Wyoming Secretary of State, which is low compared to Maryland at $450 or Tennessee, which can be from $300 to $3,000, depending on the number of members.
To maintain an LLC, the company has to pay an annual report license tax of $60. That’s it. In Tennessee, maintaining an LLC can set a company back between $300 and $3,000 every year.
Based on the pros above, it is easy to see why many people want to form an LLC in Wyoming. However, a discussion of Wyoming LLC’s pros and cons would not be complete without the cons. While they are mostly minor, knowing the worst would still be best.
Indeed, Wyoming does not compel LLC members to disclose their identity in the Articles of Organization, which is in the public record. However, the anonymity afforded by the privacy laws has a small kink: Wyoming requires LLC members to provide the registered agent with their name, contact information, and address (no PO Boxes) and those of managers. The Secretary of State can obtain that information from the registered agent based on recent updates on Wyoming’s statutes.
Wyoming’s charging order protection laws are effective for members to protect their LLC assets and ownership from creditors. However, that protection does not extend outside of Wyoming. Members living out of state will have to deal with different laws protecting their LLC assets from garnishment by creditors.
For example, a member that lives in California, where there is no charging order protection law, is vulnerable to creditors seizing their assets or ownership in the Wyoming LLC. However, the protection may stay intact if that member lives in Alaska or outside the US.
Lack of Corporate Taxes
The thing you need to understand about taxes and an LLC is that the IRS does not have a category for LLCs per se. The IRS will tax an LLC as an S-Corporation, Partnership, or C-Corporation. Which one will apply depends on the type of LLC.
The IRS typically taxes one-member LLCs as an S-Corporation, meaning the owner pays individual taxes. LLCs with two or more members also pay taxes on any income they make as individuals, but the IRS recognizes it as a partnership. This is the pass-through taxation for which LLCs are famous, and Wyoming is even more famous as it does not levy personal income taxes.
An LLC may elect to be taxed as a corporation (C-Corp) to avail tax deductions and make it easier to bring in investors in the future. However, double taxation is always an issue. Most LLCs do not take that route, especially Wyoming LLCs, for purposes of tax deductions.
Unless an LLC registers as a C-Corp for tax purposes, it will not have to pay corporate income taxes anyway. The fact that Wyoming has no corporate tax is a moot point for LLCs and nothing that should cause excitement.
The idea of forming a Wyoming LLC seems great until the fact dawns that the state has the lowest population in the US at just 580,000. From a strictly statistical point of view, it narrows the local market size of any business.
Of course, in the age of eCommerce and online delivery, there is no reason for a Wyoming LLC to limit its market to the residents of Wyoming. A Wyoming LLC can legally have customers and clients outside of Wyoming without incurring fines, penalties, or additional taxes as long as the LLC is engaged in interstate business.
Engaging in interstate business means all your operations are conducted entirely within the borders of the state of Wyoming. The LLC merely ships the products to people or companies in another state. For example, if you manufacture goods in your plant in Wyoming and send it to customers in California, California cannot regulate your business or impose taxes on you.
The final con in these Wyoming LLC pros and cons pertains to members who form an LLC in Wyoming but live in another state. In that case, the costs become a little problematic. An LLC owned by a non-resident must also register the Wyoming LLC in their home state as a foreign LLC. As a result, the non-resident has to pay filing and annual fees in both Wyoming and the home state.
For example, John lives in Tennessee and formed the LLC in Wyoming. He pays the filing fee of $100 accordingly. However, since he is doing business in Wyoming but lives in Tennessee, he is illegally doing business in Tennessee, so he files his Wyoming LLC with the Tennessee Secretary of State as a foreign LLC, paying the $300 fee.
Technically, there is still a LLC in Wyoming. However, John must file for an LLC and pay reporting fees in both states. He may also have to pay for a registered agent in both states. Tennessee also imposes a franchise and excise tax on most LLCs, which John must also pay. John could have avoided all these expenses if he had originally chosen to file his LLC in Tennessee.
All these caveats only apply to non-Wyoming residents. If you are a resident of Wyoming or do not live in the US, you will probably not run into any of John from the example’s problems.
Wyoming is a popular state for LLC formation because of its many advantages in terms of ease of filing, low costs, privacy, and tax advantages. However, it would help to consider Wyoming LLC’s pros and cons to make an informed decision. You need to understand the various legal, cost, liability protection, and privacy implications before you decide to take the plunge, especially if you are not a Wyoming resident.
If you are uncertain about your options for a new business and whether you are doing the right thing, consult the professionals for legal advice. Contact the LLC filing experts at doola.
We have expertise in all US states and can help you not only form an LLC in Wyoming but keep it legal and compliant. doola is your trusted partner in business. It has an Excellent rating in TrustPilot and backed by world-class investors Nexus Venture Partners, Harvard Management Company, Y Combinator, and Hustle Fund. They trust us with their business; so should you.
Wyoming LLC Pros and Cons FAQs
Why is Wyoming one of the best states for LLC?
Wyoming has many advantages over other states for building an LLC. It has no state income tax, filing and reporting costs are low, members’ privacy is assured, and it has charging order protection laws.
How do I make my LLC anonymous in Wyoming?
You can make your LLC anonymous in Wyoming by omitting the names of members from the Articles of Organization. Wyoming will accept the pertinent information of the registered agent as a nominee director or manager for the LLC.
Does Wyoming have an LLC filing requirement?
Yes, Wyoming LLCs have to submit an annual report to the Secretary of State on the first day of the LLC’s anniversary month. The annual report carries a license tax of $60 or two-tenths of one mill on the dollar of the company’s assets in Wyoming, whichever is higher. One mill is one-thousandth of a dollar per $1 of assessed property value. Failure to submit the report and pay the tax within 60 days can lead to the revocation of the LLC and permanent dissolution for failing to submit an annual report for two years.
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