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Note: If you live in Wyoming, do business in Wyoming, or are a non-US resident, then this information doesn’t apply to you.
Although you may have read differently, most people should not be forming an LLC in Wyoming.
In order to best explain the reasons, let’s look at an example:
- Steven is a resident of California
- He runs an online business from his home in California
- He reads online “Wyoming is the best state to form an LLC“
- He forms an LLC in Wyoming
Let’s discuss the issues that will arise in this situation.
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Domestic LLC vs. Foreign LLC
If you form an LLC in your home state, this is called a “Domestic LLC”. Meaning, the LLC is domestic to that jurisdiction.
If you want this Domestic LLC to do business in another state (a different jurisdiction), you must register that LLC in the new state. Once registered, that LLC is known as a “Foreign LLC”.
It’s technically just one LLC. The LLC originally has authority to do business in its home state, since that’s where it was formed. And then it must file as a Foreign LLC in every state it wishes to do business.
So in our example, Steven has only formed a Domestic LLC in Wyoming.
(for more info, please see: domestic LLC vs foreign LLC)
Wyoming LLC Illegally Doing Business
Since Steven is running his business from his home in California, his Wyoming LLC is illegally doing business in California.
In order to avoid fines and penalties, he must register his Wyoming LLC as a Foreign LLC in California.
Foreign LLC Registration
In order to remedy the fact that Steven’s Wyoming LLC is illegally transacting business in California, he’ll need to register his Wyoming LLC as a Foreign LLC in California.
This means he now:
- has 2 LLC filings to maintain (a Domestic Wyoming LLC and a Foreign California LLC)
- has 2 state filing fees
- has to meet annual requirements and fees in both states
- may have increased Registered Agent fees
So in hopes of obtaining certain Wyoming LLC benefits, Steven has instead complicated the situation, increased his fees, and will most likely get no benefits from a Wyoming LLC.
Doing Business
Even if Steven has no employees in California, no office in California, and no clients in California, he is still running the business from his home in California.
Furthermore, California not only has strict corporate laws around doing business in the state, but they also have strict taxation laws. This means that in addition to the LLC costs in Wyoming and California, Steven may receive fines and penalties from both the California Secretary of State and the California Franchise Tax Board. He’ll also end up paying California LLC annual fees and taxes anyway (which may have been the reason he considered a Wyoming LLC in the first place).
Note: “Doing business” has more to do with where you are running and operating things from instead of where your clients and customers are located. A lot of our readers ask us if they have to register their LLC in every state where their customers are located. No, you don’t have to. You can just form your LLC where you are running the business from.
The court has discretion about the jurisdiction
If Steven was looking to obtain certain legal benefits by having a Wyoming LLC, those benefits may not apply in a court of law.
If Steven’s Wyoming LLC is involved in a lawsuit, the courts have discretion on which state laws apply. Since Steven is doing business in California, it’s possible that the courts may decide that Wyoming law doesn’t apply and that California law applies instead.
So the legal benefits of the Wyoming LLC are now useless.
The headache
And although the money may not be a huge deal for some people, the headache can be quite overwhelming for others.
We hear all kinds of horror and frustration stories about LLCs being set up in the wrong state.
We recently heard from a real estate developer, who after acquiring land and building a subdivision, realized they shouldn’t have formed their LLC in Wyoming, wanted to move the LLC to their home state and then were pretty much “frozen” in a state of inaction when they realized how complex a conversion/redomestication filing was (moving the LLC from Wyoming to California).
Not to mention, the need to close a bank account, open a new one, draft internal agreements, re-register their new LLC with vendors and suppliers, update the IRS, and more. The time and opportunity cost were well into the tens of thousands of dollars.
Wyoming has no corporate taxes
A lot of people get really excited when they hear that “Wyoming has no corporate income tax!”
Unless your LLC is taxed as a C-Corp, this won’t even apply. And this is the case for 99% of our readers.
Said another way, most LLCs don’t pay corporate taxes since LLCs are pass-through entities.
Meaning, in their default tax classification, LLCs don’t pay any corporate income taxes. The profits from the LLC “flow through” to the owner’s personal income tax return and are paid on the individual level (not at the corporate level).
So that fact that Wyoming doesn’t have state corporate income tax doesn’t matter.
Furthermore, you pay state income taxes where the money is made. Not where the LLC is formed.
Taxes are paid where the money is made
Even if there are applicable tax advantages in Wyoming, this won’t apply if you’re doing business in your home state.
State income taxes are paid where the money is made. So in Steven’s case, he would get no tax advantages whatsoever by having an LLC in Wyoming and instead, he’d be paying all his state income taxes in California.
What’s worse, is that the Wyoming Department of Revenue may require an informational return to be filed. This means additional costs for Steven’s accountant to file a “zeroed-out” return in Wyoming and apportion the LLC’s earnings to California.
“My business is online with no physical presence”
Frankly, the state governments don’t care if your business is online or not.
The fact that you run your business from your home means you’re doing business in that state. Even if you work from a coffee shop, you’re still doing business in that state.
And that state wants to collect their tax revenue and enforce their LLC filing requirements for businesses illegally operating in the state.
Takeaway
Save yourself the money and the headache.
Just form your LLC in your home state or the state where you’re actually doing business.
References
Wyoming Economic Development Agency: Licensing and Permitting
Wyoming Secretary of State: Should I Apply for a Certificate of Authority?
Wyoming Statutes: Title 17 (Corporations, Partnerships, and Associations)
17-19-1501. Authority to transact business required
17-19-1502. Consequences of transacting business without authority
17-19-1503. Application for certificate of authority
17-19-1530. Grounds for revocation
17-19-1531. Procedure and effect of revocation
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.
WYOMING LLC GUIDE
Follow the lessons below to form your Wyoming LLC.
I am interested in protecting the my ownership in an expensive , 4-5 million dollar, marine asset. Is an anonymous LLC my best option? If so which state will best protect my identity? I’m assuming the best methodology would be for the LLC to purchase the asset. I’m not trying to avoid taxes in any manner.
I would prefer to not resort to over shore ownership/registration of the asset. I currently reside in NC. The seller is a multinational organization and can arrange the sale literally anywhere in the world.
Thank you.
You didn’t discuss real estate holdings, in which case this article misses the point. It’s very effective to have a holding company in Wyoming (or Delaware) and then have a domestic LLC(member managed) where the property is located, naming the sole member of that domestic, the Wyoming LLC. This is very good for asset anonymity, making it difficult for anyone to trace the property back to you.
Hi Matt,
I live in NY. I want to buy hunting/fishing property in West Virginia. I would like the property to be private. This is not a business. Would WY be a good choice?
Thank you
Erik
hello first of all thank you for your informative comment and article i have a question amazon.com i will sell through my address my address will be in florida, but I want to set up my llc company in Wyoming I am not a US citizen do I need to register my llc company in the state of florida as a foreign llc thank you
If I am a non-US resident looking to form a Wyoming LLC to operate an e-commerce outside of the US do you think Wyoming is the right state?
According to my personal research so far is the one state with more benefits.
Also, what do you think would happen if after some time I opt to expand my offerings to the US?
Thank you very much and really helpful all the information you provide.
Hi Jaime, Wyoming is a fine state to use. You can pretty much pick any state you’d like. It’s really hard to say which is “best”. What do you mean by “expand my offerings to the US”?
Hi Matt,
Great site. Thanks for all the insight. I read thru the comments and have questions for you.
I am a consultant in NJ with a NJ LLC. I worry about liability bc I give non-legal advice to businesses and carry E&O insurance. Since I am the principal of my business and clients know who I am, does it make sense to open an Ohio holding LLC to hold the NJ LLC for anonymity proposes? Is it a waste in my case or is there still protection to be had there?
Would it make a difference to tell clients my company is owned by another company? (Which would be the truth). Do my personal assets have any more protection by doing this?
Thank you in advance!
Thanks Joe. You’re welcome. Based on what you’ve shared, the Ohio LLC holding company might not offer more asset protection. However, if you think it has good optics or sounds good, it’s totally fine to have your New Jersey LLC owned by your Ohio LLC. And generally speaking, it’s more private. Since in filings (formation filings or annual filings), if they ask for a Member or Manager to be listed, you can just list the Ohio LLC instead of yourself.
The primary advantage of forming a Wyoming LLC lies in establishing a Holdings Company, LLC that possesses and leases all your assets to your operating company in your home state where the LLC is formed. Additionally, the Holdings Company can own the LLC in your home state, and by having a registered agent, the ownership details remain confidential. In my humble opinion, this provides a significant benefit as it effectively separates you from personal liability. Moreover, if executed properly, there are enhanced tax advantages as well.
Hi Timothy, you are mostly correct in that a Wyoming LLC (in the context of a holding company, aka parent company) can own operational LLCs in other states… or LLCs that own assets, such as real estate. However, the “child” LLCs don’t need to – or typically – lease property to the parent company. For the most part, the parent LLC just simply owns the child LLCs. Having said that, that doesn’t mean licensing agreements aren’t sometimes in place. It’s just not a “go to” set up.
Regarding privacy, there are over 20 states that are private (meaning, Members or Managers aren’t listed on the Articles of Organization, or equivalent form). So the need for a Wyoming holding company for privacy reasons needs to be looked at more granularly… and, in my opinion, shouldn’t be a “broad stroke” application.
Additionally, not all business owners want (or are capable of handling details and logistics) around LLCs owning LLCs.
And in terms of tax advantages, there are no income tax savings per se to be had. However, having a parent LLC own child LLCs can simplify the return, therefore saving money on tax services (but not income taxes). Meaning, when an LLC is owned by another LLC, only the parent LLC files a federal return. All the child LLCs are taxed like a branch/division of the parent company.
Now having said all that, we could do a much better job at presenting all the various ways in which one could use a Wyoming LLC. Currently, the way the page is written, is to be applicable to a wide audience who is new (or newer) to LLCs. And the point we were aiming to make is that a Wyoming isn’t a “must” for all, or even for the majority. However, there is a lot more we could expand upon. So thank you for your feedback and contribution.
Couldn’t Steven just open an LLC in California and perform his business under that LLC and put the California LLC under a Wyoming Holdings LLC? Then the Wyoming Holdings LLC would not be a foreign LLC but instead would be his “parent company”.
Hi David, yes, Steven could first form a Wyoming LLC (a parent company, aka holding company) and then form a California LLC owned by the Wyoming LLC. Having said that, if it came up, California could require to the Wyoming LLC to be registered as a Foreign LLC with the argument that Steven is also running that company from home in California, and therefore that Wyoming LLC is transacting business in California. Annoying, I know.