Last updated November 2, 2020
Why You Shouldn’t
Form an LLC in Wyoming
Quick Start Guide
This Quick Start Guide is a brief overview of how to form an LLC in Wyoming.
Detailed Lessons:
1. Name Search
2. Registered Agent
3. Filing Forms
4. Operating Agreement
5. Tax ID Number (EIN)
6. Annual Report
7. Licenses and Permits
8. Taxes
Wyoming LLC Costs:
Wyoming state fee: $100
Annual Report: $50 (if LLC has $250k+ in assets located in WY, then it’s higher)
Need to save time?
Hire a professional to form your LLC in Wyoming:
Northwest ($39 + state fee) or LegalZoom ($149 + state fee)
★ Check out Northwest vs LegalZoom
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.
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).
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
Hello,
My home is in California and was looking to form my LLC in Wyoming like “Steven”. The difference is I planned on having a virtual office in Wyoming not only for the above example but also I will be traveling full time. Will I still need to file in California as well?
Best regards
Bell
Hi Bell, it’s a bit of a gray zone, however, will you remain a CA resident and file state taxes? If so, California is very strict regarding what it means to be legally doing business (see what is doing business in California). More specifically, their corporate laws and tax laws have dedicated sections regarding doing business. So if you form an LLC in Wyoming, but are working from California, the state will deem that as illegally transaction business (and you’d need to register your Wyoming LLC as a Foreign LLC in California). Hope that helps.
Hello ,
My name is Rohan and I am physically located in India and want to form a LLC in Wyoming.
Is it possible to do the same please let me know about the same.
Hi Rohan, yes, it’s possible to form an LLC in Wyoming. You can file it yourself online (see how to form an LLC in Wyoming; follow the lessons in order) or you can hire a filing company (we have recommendations on that page). Unless you know someone in the state who can be your LLC’s Registered Agent, you’ll want to hire a Commercial Registered Agent in Wyoming. After your LLC is approved, how you get an EIN from the IRS and open a bank account are slightly different. But we have instructions on those here: applying for LLC EIN without SSN and non-US resident LLC bank account. Hope that helps!
I currently own investment property in Alaska and Arizona. I have been looking into many different options as to what state our business will form a LLC. Currently, our Plan A is to create a Wyoming LLC that will own other LLCs in each state we own property. Wyoming LLC would be the parent LLC while in Alaska and Arizona each have separate LLCs for each property. My understanding is we would not have to form a foreign LLC for the Wyoming LLC in Alaska or Arizona because it simply owns the property. The individual state LLCs create the revenue and do the business. Is this idea flawed? Recommendations
Hi Blair, that is a common and strong setup for investors with property in multiple states. Wyoming LLC owns the state LLCs and the state LLC owns property in the state where they are formed. Hope that helps.
Hi Matt,
I live in NY and plan to create a SMLLC in Wyoming for e-commerce/online business purposes.
I know that as a pass through entity I’ll report all of the profit and losses on my personal tax returns. I’m not trying to get around my state’s tax obligations.
I’m more concerned about the charging order protection (and anonymity) that Wyoming provides even for SMLLC.
1- As an online business, would I still need to register as a foreign LLC in NY?
2- In that case, would a detailed Operating Agreement give me a solid Charging Order Protection even in NY? Or creating a multi-owner LLC would?
Thank you for your answers.
Best regards,
D.
Hey D, you’re correct. Even if you formed an LLC in Wyoming, you would have to apportion your income to New York and file a state income tax return in New York (and other returns, if applicable). Overall, it’s best practice to discuss your asset protection strategies with an attorney. You can look into forming a Wyoming LLC that owns a New York LLC. This is usually a stronger setup than a Wyoming LLC with a foreign LLC registration in New York. Hope that helps.
I see, thanks Matt.
Do you know if a charging order protection is the exclusive remedy for a multi-member LLC in NY? That could be the solution?
Hey Dejon, we haven’t covered the specific details of charging order protection. It’s far more complex and detailed that you’d think (other sites/videos may lead you to think otherwise). Meaning, if and you’re in court, decisions are rarely made based on one piece of statute. There are multitude of factors and things are looked at holistically. It’s best practice to speak to a few attorneys. It’s also a good idea to speak to a few attorneys who aren’t “promoters” of specific entity structures… this way, you can look at if from multiple perspectives. Having said that, Section 607 of the New York LLC Law deals with the rights of creditors of LLC Members. Other sections are also applicable as well, including, but not limited to Section 601, Section 603, and Section 604. Hope that helps.
Hi Matt,
I am hoping you can answer my questions.
You made a comment about “running a business.” What determines where you are running a business? Here is an example question. If I hire someone to create an online platform based on my ideas and requirements, is this considered running a business from my home state?
I am providing an online platform where businesses can search for professionals who are independent contractors. Am I required to register this online platform business in my own state or can I take the advantage of tax breaks offered when registering in Wyoming?
I am taking a percent of the independent contractor’s pay to cover the cost of maintaining the online platform. Who is responsible for the sales and or service taxes?
Thank you,
Mary
Hi Mary, the more accurate term is “legally transacting business” (in most states). Each state has different laws for what it means to be transacting business. And unfortunately, state governments and tax collecting bodies of the state (like the Department of Revenue) don’t care if your business in “online” or offline. Generally speaking, you do things for your online business from a certain location. For many, that is usually the state where they reside. Furthermore, your state personal income taxes are paid in the state where you reside, not in the state where you form your LLC. So for most people, the income will be reported (and taxes paid, if applicable) in the state where you reside and are doing business. You’ll need to speak with an accountant (or a few) to determine if you need to pay sales tax on services. Hope that helps!
Hello Matt,
I have been researching where to start my LLC and was told WY is ideal by other people in the same business because of the better protection and anonymity it provides. My office will be in TX where I currently reside. So based on what you are saying I would need to register my LLC here in TX as a “foreign LLC” since this is where I am “legally transacting business”. So I have a few questions about my options.
Would my LLC profits be taxed by both states?
It seems that the protections WY offers won’t really apply if the there is a lawsuit and courts decide to use TX law where the foreign LLC is registered. IS that accurate, if so how to the courts decide to choose which laws apply in situations like this?
I plan to own properties all over the country and I was hoping to get the WY protection and anonymity for them all that the LLC owns, it seems this plan is flawed based on what your article says, can you clarify if there is a way to get the protection and anonymity from WY if I don’t live there?
Thanks.
Hi Stephen, yes, you are correct. If you form a Wyoming LLC but your Wyoming LLC is transacting business in Texas, you need to register your Wyoming LLC as a foreign LLC in Texas and register the Wyoming LLC with the Texas Comptroller too. Keep in mind as well, at this time, a Texas foreign LLC qualification is $750. In this scenario, your accountant will likely file a tax return in each state, but apportion the income to Texas. The are numerous factors that courts use to determine jurisdiction and where a case is held. If you plan to own properties in multiple states, then an LLC should be formed in that state or an LLC should be registered as a foreign LLC to do business in that state. However… it sounds like you’re thinking of forming a Wyoming LLC parent company and then forming additional domestic LLCs in the states where they are transacting business… and those domestic LLCs are owned by your Wyoming LLC; that can be done. You would form the parent LLC in Wyoming first and then form the other LLCs. The Member (owner) of those LLCs would be your Wyoming LLC. It’s not automatically going to give you anonymity (you’d need to examine all foreign LLC forms and each state’s annual requirements to look for which addresses need to be used and how the parent company, if necessary, needs to sign… and then devise your strategy based on that… it comes down to the details… the line by line items/information/signatures on all required forms to have “absolute” privacy… or as much privacy as possible. Hope that helps!
Starting in 2021, I am inclinded to:
Form Wyoming LLC but the Wyoming LLC is transacting business in Tennessee, where I have residency. While my rental properties are in Beverly Hills.
My subleased rental properties are in CA. I have always operated my business remotely from all over. In the past, as a Sole Proprietor, I paid taxes in CA as I stated I was there 90 days/yr. The rest in TN even if I was constantly traveling domestically and abroad.
Now, for only $20, I need to register the Wyoming LLC as a foreign LLC in Tennessee.
Does all of this sound ideal?
Should I just stay a Sole Prop until I own properties, I wonder.
Hi I and my partner are thinking of opening either a LLC or C Copr in Wyoming. It will be an internet software business and we plan to start looking for our first clients in Europe. One of us is in Spain the other one lives in California. Once we build up our client list in Europe we plan to focus on US market and look for US funding. Do you see any complications into this structure? Or could you recommend a better alternative?
Hi Jo, you may run into issues with needing to foreign qualify your LLC in California. California has strict laws (both corporate law and the revenue and taxation law) regarding “transacting business” in the state. If you are running the business from California, your Wyoming LLC is likely illegally transacting business in California. Even more broadly, California usually deems an LLC doing business in California if an active Member of the out-of-state LLC is a California resident. For more info, please see is my LLC doing business in California. You may want consider just forming a California LLC. Hope that helps.
Hello,
I live in California but will be purchasing properties in PA. I was going to set up a Wyoming LLC to own the LLC’s in PA. The PA LLCs will own the property. Do you think that is my best option?
Hi Elle, it is a popular setup to form a Wyoming LLC “parent” company to own “child” LLCs in the states where the properties are located since that is where the child LLCs will be transacting business. Please see my reply above to Jo. You may need to foreign qualify your Wyoming LLC in California. Hope that helps.
Hey Matt, I live in my apartment in CA but have family in CO. I plan on doing business in both states so I want to set up an LLC but I’m stumped at which state I should set it up in. I live real close to the airport that I’ll be using to travel back and forth from, but as of now I’ll be doing most of my business in CA. The thing is, I can not use my apartment as a business. If I were to get a UPS box would that be my address used in forming my LLC? Would it be better to form the LLC in CO and add it in CA? Is that possible? Or in CA and add it in CO? Because I’ll be living in CO later on in life.
Hi Grant, you can form an LLC in Colorado and register it as a foreign LLC in California. Or you can form an LLC in California and register it as a foreign LLC in Colorado. There really isn’t much of a difference.
Think about a foreign LLC registration (aka foreign qualification) like this: It’s really just 1 LLC with authority to transact business in 2 states. For example, if you form an LLC in California and register it as a foreign LLC in Colorado, it’s really just one LLC. It’s a California LLC with authority to transact business in California and in Colorado. However, it is 2 LLC filings to maintain. And 2 addresses. And 2 Annual Report requirements.
Yes, you can use a UPS Store mailbox for your California LLC address. However, you’ll also need a California Registered Agent. So if you serve as the Registered Agent for your California LLC, that can only be done while you’re residing in California. Once you move to Colorado, you’ll need to change your Registered Agent. If you hire a company (we recommend Northwest Registered Agent) they can serve as your LLC’s Registered Agent. And they’ll also let you use their office address as the LLC’s Business Address in California.
Either way, we recommend not filing in California until 2021. This is because of Assembly Bill 85, which can save you $1,600 in 2021. Meaning, don’t form a California LLC (or register a Colorado LLC as a foreign LLC in California) until 2021. Another way to accomplish this is by using a “future file date” if you form/register online in California. Hope that helps!
Matt,
Thanks for answering everybody’s questions. We live in SC and want to start a small cargo expeditor service, which will transport cargo across various states.
Another website mentioned that an “A company that conducts all its business across state lines, such as transporting goods from one state to another, is engaged in interstate business” and doesn’t need to register to conduct business in another state. In that case, does a WY LLC meet our needs and avoid SC state filings (including state income tax)?
Hi Mark, you’re welcome :) You are correct that the business activities are interstate commerce (and not intrastate commerce), however, because you are operating and running the business from South Carolina, the out-of-state LLC would be transacting business in South Carolina and should register as a Foreign LLC. Furthermore, since you reside and do business in South Carolina, you’re going to pay South Carolina state income taxes no matter where the LLC is formed. Hope that helps.
Let’s assume that Wyoming commercial insurance rates are lower than SC (SC is a bit expensive). With a WY LLC, am I able to use that address for my insurance policy? Again, this is an interstate business, and I’m guessing we would drive within the Midwest most of the time.
Hi Mark, we’re not sure on this, as we’re not insurance specialists. We recommend speaking with your insurance agent. Thank you for your understanding.
If I have WY LLC which only holds financial securities like stocks, and the only income derived from this LLC is portfolio income such as dividends and capital gains from the sales of the securities, will I have to pay state tax if I am a resident outside of WY, like California?
Very curious to know if the WY LLC just owns or buys and sells stocks through brokerage account registered with WY LLC from my computer at home be considered as a “doing business” in my home state.
If making that transaction at home state is considered as “doing business”, what if I make the transactions when I’m NOT in home state but when I’m physically in WY? (Theoretically, i could make few transactions like once or twice a year, and every time I do, I would fly to WY or anywhere that doesn’t have state income tax)
If these don’t work, instead of electing “disregarded” entity, should I elect C-Corp for tax purposes to mitigate the state tax from CA? Or should I just forget about the LLC and form a Corporation for state tax purposes?
Hi Maddy, with an LLC earning money like this, you’ll pay your taxes in California no matter where the LLC is formed. Regarding whether or not it’s more advantageous to form a Corporation (or have your LLC elect C-Corp tax classification) has quite a bit to unpack. We recommend speaking with an accountant (or a few) to see what the advantages and disadvantages are. Thank you for your understanding. Also, please see my reply below to Colin (in response to Craig), which goes in depth into a very similar situation. Even with all you mentioned, it is still most likely that California will consider your out-of-state LLC to be doing business in California and therefore, your out-of-state LLC must register as a foreign LLC in California, and file and pay California taxes.
Hello Matt,
I had a similar question for which I have asked tax specialists, lawyers, accountants and get different answers. Wanted to know your take. I am California resident who operates a Wyoming LLC. However, the Wyoming LLC is only a brokerage account- that is, only holds savings/stocks/dividends. According to California code 17708.03., one of the exclusions where a business is “not transacting intrastate business” is if you “maintain accounts in financial institutions.” Some lawyers and tax specialists say this would apply to situations like my LLC, therefore no California state filing/franchise tax fees should apply. Others differ. Know we shouldn’t take what you say as financial advice, but wanted to know your take in this caveat. I tried to ask California Tax Board the same question and they won’t answer directly, said to speak to lawyer haha. Thanks!
I feel you man. Everyone says “talk to an attorney” or “talk to an accountant”. And then you get different answers, some of which contradict each other. Super frustrating. We’ve written more extensively about when is an LLC doing business in California. You’ll want to look at Section 23101(a): “‘Doing business’ means actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.” California law is pretty far-reaching when it comes to “doing business” in California. Hope that helps.
Craig,
Good question you are asking and you are quite correct.
First, the exception you are referring to (“maintaining accounts in financial institutions”) does in fact exist and is clearly defined in existing CA law. Anyone can look it up for themselves. There is a reason that the CA Tax Board didn’t want to answer this question, and said go talk to your lawyer – because any lawyer worth their salt who you have retained to discuss tax and corporate formation strategy, would show you the detail of this exemption five minutes into any discussion on this topic.
On the other hand, you must be aware of the limitations of the financial institution you choose. Not all financial institutions are equal.
For example, only the WY SPDIs (and there are currently only two approved so far – Kraken.com, technically licensed as a WY SPDI as Kraken Financial, and Avanti) have the advantage of being true crypto-fiat banks with the capability to ultimately (as is required by WY law) provide for customer options in custody such as multisignature or smart contract. And it is possible that only these SPDIs will be able to be maintained so that all aspects of the transaction happen within Wyoming.
Technically speaking, Matt is incorrect regarding California. Even existing companies can and do decouple from California’s sphere, and this process can involve major firms fully deactivating their California corporate status while reincorporating elsewhere or shifting operations to another existing corporate entity – a major change, but not an impossible one.
Contrary to some beliefs, it is not impossible to serve CA in this condition, but the newly reincorporated entity or the entity that has made specific regulatory and strategic choices, may need to do so in ways that it did not consider before. For example, a financial services firm that is operating outside of NY and does not obtain a bitlicense, cannot grant accounts to individuals in NY. But it can grant accounts to corporate entities not formed in NY, even if those entities are held in part by NY individuals, since the clients in NY are now the non-NY corporations.
In like manner, a firm abandoning CA and which wishes to incorporate in WY (for the benefits there) and in some other jurisdictions, but not in California, can do so but would likely need to constrain its service of CA to WY LLCs (that is, to generate WY LLCs for interested CA persons, and thus the LLCs “maintaining accounts” in the “financial institution” become the clients for legal purposes). The CA persons accessing the LLC accounts are merely accessors. The executives of the firm (the executive team or board) would have their presence outside CA.
The whole list of exemptions is below, quoted from CA law:
——-
Without excluding other activities that may not be considered to be transacting intrastate business in this state within the meaning of this article, activities of a foreign limited liability company that do not constitute transacting intrastate business in this state include all of the following:
(1) Maintaining or defending any action or suit or any administrative or arbitration proceeding, or effecting the settlement of those, or the settlement of claims or disputes.
(2) Carrying on any activity concerning its internal affairs, including holding meetings of its members or managers.
(3) Maintaining accounts in financial institutions.
(4) Maintaining offices or agencies for the transfer, exchange, and registration of the limited liability company’s own securities or maintaining trustees or depositories with respect to those securities.
(5) Selling through independent contractors.
(6) Soliciting or procuring orders, whether by mail or electronic means or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts.
(7) Creating or acquiring indebtedness, evidences of indebtedness, mortgages, liens, or security interests in real or personal property.
(8) Securing or collecting debts or enforcing mortgages or other security interests in property securing the debts and holding, protecting, or maintaining property so acquired.
(9) Conducting an isolated transaction that is completed within 180 days and is not in the course of a number of repeated transactions of a like nature.
(10) Transacting business in interstate commerce.
(c) Without excluding other activities that may not be considered to be transacting intrastate business in this state within the meaning of this article, a foreign limited liability company shall not be considered to be transacting intrastate business in this state merely because its subsidiary transacts intrastate business in this state, or merely because of its status as any one or more of the following:
(1) A shareholder of a domestic corporation.
(2) A shareholder of a foreign corporation transacting intrastate business.
(3) A limited partner of a foreign limited partnership transacting intrastate business.
(4) A limited partner of a domestic limited partnership.
(5) A member or manager of a foreign limited liability company transacting intrastate business.
(6) A member or manager of a domestic limited liability company.
(d) A person shall not be deemed to be transacting intrastate business in this state within the meaning of this article merely because of its status as a member or manager of a domestic limited liability company or a foreign limited liability company registered to transact intrastate business in this state.
(e) This section does not apply in determining the contacts or activities that may subject a foreign limited liability company to service of process, taxation, or regulation under the law of this state other than this article.
Hi Colin, thank you for your thoughtful and thorough follow up. However, just having a bank account (regardless of whether it’s in California or Wyoming) a brokerage account, or Special-Purpose Depository Institution account (with all transactions occurring in Wyoming) isn’t the full picture. Meaning, the California Franchise Tax Board (FTB) will certainly be looking further than that.
As per Section 23101(a) of the Revenue & Taxation Code: “Doing business means actively engaging in any transaction for the purpose of financial or pecuniary [financial] gain or profit.” If Craig, even a few times per year, makes phone calls to his financial manager or an employee who works for the brokerage company, that will be considered doing business in California. Another example would be doing market research. However, simply the basic operations and management of the LLC from his home or office or coffee shop in California would constitute doing business in California.
Furthermore, Section 23101(b)(1) means the LLC will also be doing business in California since it’s commercially domiciled in California. This definition doesn’t mean an office building has to be rented, however, where the “realistic control” of the LLC’s functions are centered will be sufficient. So if Craig manages his investments from his home in California on behalf of the LLC, the LLC is doing business in California.
Additionally, Section 23102 states that an LLC trading in stocks, bonds, and other securities is doing business in California. Adding detail, it doesn’t matter where the actual stocks, bonds, and other securities are located. It is the trading activity taking place in California (specifically, the LLC Member or Manager being located in California and trading on behalf of the LLC) that means the LLC is doing business in California.
Additionally, all of the following would work against his case:
Please see FTB 3556 LLC MEO, Limited Liability Company Filing Information for more examples of out-of-state LLCs doing business in California (see “Doing Business in California” section).
In order for Craig’s Wyoming LLC to not be doing business in California (assuming he forms a Wyoming LLC that owns a brokerage/financial account in California), he has to reside in Wyoming, run and manage the business from Wyoming, not engage in business activities with people or companies in California, make no business calls into California, and not buy and sell stocks, bonds, and securities, then the LLC is likely not doing business in California. Said another way, the account would have to sit (he can collect dividends), but he couldn’t even actively buy and sell, let alone be a resident of California with management authority who acts on behalf of the LLC while in California.
Someone else reading this may think, “Why not just tell them you do everything in Wyoming?” It’s important to know that whether you’re involved in a tax assessment from the California FTB or an audit, or you are in court, you are under the penalty of perjury. You are required by law to disclose numerous documents and to tell the truth. As per California Penal Code Sections 118 through 131, perjury is a felony offense and can lead to imprisonment for 2-4 years. The facts usually come out. We don’t recommend making stuff up.
Assuming the above facts were true, Craig’s Wyoming LLC is subject to California taxes and to the $800 Annual Franchise Tax and to the LLC Estimated Fee. The LLC must file Form 568 (LLC Return of Income) each year as well as any other tax returns that are applicable in California.
Penalties:
We recommend looking through 2018 Instructions for Form 568 Limited Liability Company Tax Booklet, specifically the “Penalties and Interest” section.
If an LLC is doing business in California, but is not registered as a foreign LLC, the state will charge $2,000 for each taxable year the LLC is not registered as a foreign LLC.
Failure-to-file penalty:
$18 per month (per LLC Member), up to 12 months maximum.
Late-filing penalty:
5% per month, up to 25% of the unpaid LLC Annual Franchise Tax and the LLC Estimated Fee (if applicable).
Failure-to-pay penalty:
Starts at 5% and increases by 0.5% for every month the payment is late, up to a maximum penalty of 25%.
If an LLC is assessed a late-filing penalty and a failure-to-pay penalty, the penalties will be assessed together, but the total penalty can’t be more than 25% of the unpaid tax.
Additional items:
– If the LLC owes an LLC Estimated Fee and underpays the LLC Estimated Fee, there is a 10% penalty (10% of the unpaid Estimated Fee).
– Interest is owed for any taxes not paid by their due date.
– Interest may also be owed on some penalties.
Suspension or forfeiture:
Furthermore, if an LLC doesn’t file Form 568 and/or doesn’t pay any tax, penalty, or interest, the state can take away the LLC’s powers, rights, and privileges. Also, a contract entered into with a suspended or forfeited LLC are voidable by any party except the suspended or forfeited LLC (unless the LLC applies for relief and that relief is granted by the FTB).
In summary, the rules around doing business in California are pretty far-reaching. We hope this is helpful.
Hi Matt,
You’ve asserted in part that
(In order for Craig’s Wyoming LLC to not be doing business in California (assuming he forms a Wyoming LLC that owns a brokerage/financial account in California))
“he has to reside in Wyoming, run and manage the business from Wyoming, not engage in business activities with people or companies in California, make no business calls into California, and not buy and sell stocks, bonds, and securities (…)”
As you may have noted from my comment prior, I stated that “Not all financial institutions are equal.”
I further stated that “only the WY SPDIs (and there are currently only two approved so far – Kraken.com, technically licensed as a WY SPDI as Kraken Financial, and Avanti) have the advantage of being true crypto-fiat banks with the capability to ultimately (as is required by WY law) provide for customer options in custody such as multisignature or smart contract. And it is possible that only these SPDIs will be able to be maintained so that all aspects of the transaction happen within Wyoming.”
As such of course, while each person is rightly encouraged to seek their own counsel, all accounts and transaction flows maintained within that state are kept from California’s purview.
You could argue, as you have, that someone must move to Wyoming (and establish residency there) to gain full benefit of a Wyoming LLC. But I would argue that is a topic for lawyers to hash out; in a virtual world, the UBO / owner of the entity / LLC and the accessors of any corporate account (financial / brokerage, Wyoming) established based upon the WY LLC need not reside in Wyoming. Your imagination appears limited by traditional constructs of CA law, and I understand you think you are doing the best thing you can with your replies above, and it’s appreciated, but it’s not the only path forward.
Your reply to my comment above assumed that there must be a brokerage or financial account in California, but this need not be the case. And indeed, California’s reach – the reach of its laws and restrictions – is not infinite and does not extend everywhere and forever. It does not have infinite domain. To suggest so is certainly a suggestion that is deeply problematic and offensive to American history, to people’s individual market choices, the rights of the states, and the history of the Commerce Clause itself.
There are exceptions to California’s rule and fortunately, WY LLCs present one of the escape valves for people in this country. While a move to WY might me advisable, it isn’t required to take all benefits of a WY LLC with a financial account in WY.
Hi Colin, my reply is about when an LLC is doing business in California. We’re trying to provide helpful information since many California residents form an LLC out of state, only to later be surprised that their LLC needs to be registered in California and pay California taxes. That would apply to a Wyoming LLC that owns an SPDI in Wyoming (with all financial transactions occurring in Wyoming), but has an owner who resides and does business in California. Additionally, due to the conflicts of law and what kind of contracts the LLC enters into, if the LLC were sued in California, California law will most likely apply and not Wyoming law. You should be able to verify this, as well as other statements I made, with numerous attorneys. The statute and case law is fairly clear that the FTB reaches far and usually does so successfully. This reply isn’t meant to take stance against your broader points.
Hi Matt.
I moved to the US a couple years ago. I don’t really have a “home state.” I enjoy moving around to different states in the US and experience the culture/lifestyle at each state. I have an e-commerce business (100% online transactions). In this case, which state is the best state I should register LLC for? I know I would have to register a foreign LLC every time I move to a new state. Thank you in advance!
Also, do I need to get new sales tax ID for foreign LLC? Thanks.
When thinking of a foreign LLC, it’s not a “2nd LLC”. It’s just 1 LLC; the LLC originally formed. That original LLC has an EIN number. That LLC then files a foreign qualification out-of-state and needs a Sales Tax ID in that state. It’s still the original LLC (with it’s original EIN); it just now has authority to do business out-of-state. So no matter how many foreign LLC qualifications your LLC files, it’s always just 1 LLC. So no, no new Sales Tax ID because of the foreign LLC qualification, however you will need a new sales tax ID/permit/license in the various states where your LLC is required to have one.
Hi Vy, we certainly hear you. The corporate and tax laws have not made any adjustments to accommodate location-independent entrepreneurs. However, as long as you pay taxes in the state where you are residing and file Foreign LLC registrations, you can form your Domestic LLC in any state that you’d like.
Thank you so so so much for your reply. This site is super helpful. Thank you for sharing.
You’re very welcome Vy. Thank you!
Hi Matt,
I’m a Turkish citizen living in Turkey and I want to form an LLC (preferably Wyoming) to open an Amazon Seller Account in the U.S. Someone told me that I shouldn’t form an LLC in Wyoming because “Wyoming does not have a statewide general business license” and Amazon won’t accept my application for that reason. I don’t even know what that means. They recommend me to go with Delaware. Could you please help me out?
Thank you
Hi Cihan, we can’t comment on this because we don’t know Amazon’s policies. However, after you form your LLC, here is some information that is helpful for non-US residents:
So I am currently living in California and will have my first few properties here. However, I do plan on moving and getting property in other states. Do you think it would be best to just start in California with my LLC or start in Wyoming for my future plans?
Hi Blaine, you may want to look into setting up a holding company LLC (say, in Wyoming) and that LLC owns Child LLCs. Each LLC owns a property (or properties) located in the state in which the Child LLC is formed. Hope that helps.
Hi Matt!
Thanks for your help.
I’m starting in real estate in CA. Im buying a lot cash to build a property. Im not sure if it is best to rent it, sell it or live and work from it as part of the company’property. Then, I want to build a second one using the first property to get money from bank. I see everywhere I should form an LLC in Wyoming, but it doesn’t make sense since I still have to pay all taxes in CA and WY.
Should I get 1 LLC in CA to build all houses or 1 LLC per house, or 1 LLC owning all the other LLCs (1 per house) or I should own muktiple LLCs (1 pee house)? Thank you so much!
Also, I heard LP or LLP are best in CA. Im sk confused. Don’t know what to form.
Hi HY! There are a lot of ways to structure things. It depends on the details and the liability (re: how many homes should be in 1 LLC). However, we actually first recommend calling a few banks to see if they allow refinancing for your LLC. If the financing is a key part of your strategy, you may want to iron that out first. Not all banks offer refinancing to LLCs. You may also want to speak to a few attorneys for some structuring ideas. Since you’re starting out, you likely don’t want get too bogged down with “super fancy” strategies. Maybe getting a deal under your belt is more important in the beginning. Hope that helps :)
First I wanna thank you for answering and taking the time out to answer all these questions and second I want to apologize if you have already answered this question and I just did not catch it but I plan on using Wyoming to form a holding/parent company for several subsidiaries that will be created either at the same time as the holding company or years after adding on to the holding company one will be for real estate investing and the other will be a trucking business moving heavy equipment across all 48 states. how would I set this operation up using a holding company and subsidiaries if I plan on not being in the same state all the time and I am not a resident of Wyoming, but want to take advantage of the benefits that Wyoming offers?
Hi Brandon, thank you very much :) You can certainly form a Parent LLC in Wyoming and that Wyoming LLC owns other LLCs (“Child LLCs”). You just form the Wyoming LLC first. Then when you form the Child LLCs, you list the Wyoming LLC as the owner. Depending on the state, that might be the initial filing (Articles of Organization, Certificate of Organization, or Certificate of Formation) and the Operating Agreement… or just the Operating Agreement (in states where Members aren’t listed on the initial filing). And also the Annual Report filings, if applicable. We’re not sure what benefits of Wyoming you’re referring to, however, they are unlikely to apply if you aren’t a resident of Wyoming. Hope that helps.
Hello Matt,
Congrats for the amazing content here!
I am a non US resident and as far as I understood I can choose any jurisdiction in US to start my ecommerce (dropshipping business) as I will not have physical relation to any state. After some research I found out that makes more sense jurisdiction of Wyoming due to privacy anonimity protection. I thought in a LLC taxed as a C-corp. (C-corp taxation because I don’t want to register myself income taxes as an individual).
My questions:
1) Is there any problem/restriction of this LLC having a single owner as a foreign company?
2) I plan to pay myself in my home country selling marketing services to the US LLC using a local marketing company that I am partner in my home country. Is this okay?
3) Would it be more expensive to run a Small business LLC taxed as a C Corp from tax CPA (accounting services) point of view? (It is normal for a CPA to charge me more?)
4) What are the important tax dates and forms filings for LLC taxed as C Corp?
I will be selling products mainly to overseas (customers) but shipped from US where suppliers are located (NY and NC). I will be getting a reseller tax exemption from Wyoming. Tecnically I will be purchasing the product from my supplier and will be shipping to my customers. (With the only difference that my suppliers (in NC and NY) will be shipping directly to the shipping company that will send it to customers overseas.
My question is: 5) Do I need to have a child company in these states in these conditions?
I also noticed that there is a 100k usd threshold envolving Wyoming for online sales (sales tax).
My questions are:
6) Is this limit related to my previous question?
7) This threshold also counts inside the revenue of sales shipped from US to customers outside US?
Thank you very much
Hi Roger, thank you! There are no citizenship or residency requirement to forming an LLC in Wyoming (or in any state), so you can pick whichever state you’d like. As long as the money first goes from your LLC bank account to your personal bank account, you can do with it what you want after that.
An accountant may charge a bit more (maybe $100-300 per year) for C-Corp taxation. You’ll need to speak with a few accountants to check their rates though. Corporate returns are due every year in April. The LLC/C-Corp may need to file estimated tax payments as well.
You don’t need a child company in NC or NY in order to ship from those states. We’re not sure about sales tax thresholds, so you’ll want to speak to an accountant about that. Thank you for your understanding. Hope that helps.
Hi Matt,
First, thank you so much for this incredibly informative site!
I also have a question for you:
I am interested in forming an anonymous charity in NY. The route I was going to take was to form a LLC in Wyoming and then register as a foreign LLC in my home state of NY before I attempt to file my 1023 for 5013C status.
Would this keep my identity anonymous and an LLC can be categorized as non-profit in NY?
Best,
Leo
Hi Leo, thanks so much! We don’t do work with non-profit entities, however, this may help: an LLC can only be granted tax-exempt status if it’s already owned by a tax-exempt entity. We recommend reaching out to Harbor Compliance in Pennsylvania. They do a lot of work with non-profits. Hope that helps :)
If I live in State X, which does not have a series LLC statute, and want to own real estate investment property in State X and real estate investment property in State Y, which also does not have a series LLC statute, then I would need to form an LLC in State X and form an LLC in State Y. If I form an LLC in WY to own both the State X LLC and the State Y LLC, is the only advantage of doing that the anonymity that WY gives LLC owners? Would the WY LLC be a Series LLC or just a regular LLC? Would you need to register the WY LLC in State X and State Y as a foreign LLC? Would there be more of a liability risk if the same WY LLC owned both the State X LLC and the State Y LLC – does it make a differnce whether the WY LLC is a regular LLC or a series LLC? Thank you.
Hi Greg, if you form a Wyoming LLC (“holding company”) and that LLC owns State X LLC and a State Y LLC, no, the Wyoming LLC is not a Series LLC. And no, the Wyoming LLC wouldn’t need to register as a foreign LLC in State X and in State Y because it isn’t transacting business in those states.
A Wyoming LLC is private, meaning, the Members and/or Managers aren’t disclosed in the Articles of Organization or Annual Report. That is if you hire a company to sign as the LLC Organizer and hire a company to file the Annual Report (to sign as the Authorized Person). However, there are about 20 other states where Members and/or Managers aren’t disclosed on the Articles of Organization or Annual Report. Wyoming has a reputation for being strong for charging order protection. However, that is very unlikely to apply if you don’t reside in Wyoming.
Hello Matt,
Thank you for so much great & helpful information!
Im looking to set up a new company & would appreciate your guidance.
Canadian resident, with an online consulting business managed from Canada. No products, just consulting advice
Clients based in Canada & USA
Looking for a office-shore company set-up with simple filing & low taxation
So far it seems like a Wyoming LLC would be the best choice for my situation
I understand as I have no in-person presence within the US, the taxation is passed on to where I live
I would need to file an annual report and a IRS form
Is this information correct?
Thank you very much for your advice
Hi Frank, we recommend speaking with an accountant first. Typically, Canadians with US LLCs (LLCs taxed in their default status) pay taxes to the IRS and the CRA. A double taxation of sorts. It depends on a number of factors. Hope that helps.
Hello Matt,
I would like to first thank you for this very insightful article. It really made me think twice about choosing a state for my holding company. I currently reside in NY and was thinking of forming a WY LLC as a holding company for my stocks investments in the future. Would I still need to register it as a foreign LLC in NY to buy/sell my stocks?
Thank you for your advice
Hi Alex, you’re very welcome. If by Wyoming holding company, you mean an LLC that owns another LLC, then no, that LLC won’t need to foreign qualify in New York. If you form a Wyoming LLC that is “transacting business” in New York, you’re supposed to register the Wyoming LLC as a foreign LLC in New York.
Hello Matt,
Very happy I accidentally stumbled on your site. Very informative content! Like many others I have heard about the wonders of the WY LLC as parent/holding company for specific state LLCs actually owning the property. My question relates to how this would work from a taxation standpoint. If I form a WY LLC holding company and then have that LLC own my state LLCs (in my specific case Ohio and West Virginia that actually own the investment property) would this still be treated as a pass through to my personal income and/or would I have to file returns in all 3 states? (My Home state is Ohio). And any other thoughts along those lines worth considering?
Thanks Much!!
Hi Will, thank you! We recommend speaking with an accountant regarding any state filings, however, federally, the child LLCs will be disregarded entities with the IRS. Therefore, they are treated as a branch/division of the parent company. So it is just the parent company which has a tax return (or a Schedule as a part of your personal 1040, depending on how the parent LLC is taxed). Said another way, the child LLCs don’t file a federal return. Hope that helps.
Hi Matt,
Thank you for providing great info on what has always been a confusing topic for me. I currently own several single member Pennsylvania LLC’s that own PA mobile home parks. I also own a single member Pennsylvania LLC that owns a property management company that manages the mobile home parks. I’m thinking about setting up a single member Wyoming LLC to hold my PA mobile home park LLC’s. Is this a good idea for asset protection? Should the Wyoming LLC also hold the property management LLC ?
Hi Steve, you’re very welcome. Protecting your LLCs from a personal lawsuit is not as straightforward as many videos and articles make it out to seem. Even if you form a Wyoming LLC, if you’re sued personally (and a a judgment is entered against you), it’s the LLC membership interest that a judgement creditor will seek. And in many states, the courts may interpret your LLC membership interest to be located in Pennsylvania, since that is where you reside. There are a handful of ways to mitigate these risks, however, we recommend speaking with a few asset protection attorney in Pennsylvania (not in Wyoming, as they’ll most often be biased). You’ll also want an attorney familiar with relevant case law in Pennsylvania. In addition to that, you can increase your car insurance coverage (personal lawsuits can arise from a car accident) and also ask your car insurance provider if they offer persona umbrella insurance. Usually for a reasonable annual premium, you can get $1M – $5M of personal umbrella insurance from your car insurance provider. If not, there are many other companies that offer personal umbrella insurance.
Some relevant Pennsylvania statute to start with is Section 8853 and Section 8863. Also, depending on what an asset proection attorney in Pennsylvania can find in relevant case law, adding a second member to the holding company LLC (regardless of what state it’s formed in; since it may be treated under Pennsylvania law) may help prevent foreclosure on your LLC membership interest (in a worse-case scenario). If there is no person who can serve such a role, you can look into creating an Irrevocable Trust as the 2nd Member of the holding company LLC. Also make sure not to make this Member a “Peppercorn Member” (a Member whose ownership percentage is so low that the court may disregard the Member). Most attorneys seem to agree that 5% ownership is substantial. Again, just things to look into. It’s a complex area of law. We recommend spending some time with it and not rushing into a structure/setup, especially one that is oversimplified or comes from someone who is biased towards a certain state (without disclosing that Pennsylvania law will most often apply in a personal lawsuit). Hope that helps.
Thank you ! Appreciate your detailed response.
You’re welcome Steve :)
Hello Matt
I scrolled through and didn’t see the answer to this question. What happens when there are 4 members of the LLC living in three different states operating an online service? Would all four members just follow their own state’s income tax law?
Thank for the info. Great site. It has been very helpful.
Hi Jen, yes, the profits would flow to the Members and the Members will pay their share of income tax in their state of residency. You’re very welcome :)
I didn’t plan very well and created a WY LLC in 2019. I live in CA, so I have to pay for the Foreign LLC filing fees and Registered Agent in CA. I sell property in AZ, but my LLC is not registered in AZ. I am considering registering it as Foreign LLC in AZ so the LLC will have legal status in AZ court. The LLC does not conduct business in WY.
Current costs are:
• Registered Agent annual fee for WY: $125
• WY Annual Report: $50
• CA Foreign LLC Tax: $800
• CA Registered Agent annual fee: $39
I am planning to move to AZ which would enable me to drop the Foreign LLC in CA (not selling there) and the CA Registered Agent. What would be the process to dissolve the WY LLC and transfer the business to a new AZ LLC? Would this require an attorney or can I just file the required forms myself?
Hi Joe, domestication is a more complicated filing. We recommend working with an attorney. This is a bit over simplified, but, if that is the route you decide to take, you can file a Certificate of Cancellation to withdraw the foreign LLC filing in California (keep in mind the LLC’s final tax returns in CA) and then domesticate the Wyoming LLC to Arizona. After that process is complete, you can dissolve the LLC in Wyoming.
Okay. That seems to be what I was expecting. I will definitely get advice from an attorney.
I live in CA and my husband lives in AZ. I want to form a Wyoming LLC for an investment in a construction company where I would be a minority owner. The construction company currently only conducts business in AZ. How does using the Wyoming LLC as a holding company for my investment help me in terms of taxes? There are other reasons such as privacy I would want to do that, but I don’t know how that impacts us in terms of taxes. If only I were to own this company in Wyoming, would I then have to pay taxes in CA if I were not working at the construction company? What if it were just my husband in AZ that received the income from this company? Very confused as to what the best way to do this is?
Hi JR, first, please see when is an LLC doing business in California? Whether you formed an LLC in Wyoming or in Arizona, that LLC will need to register as a foreign LLC, pay California franchise tax, and file Form 568. The LLC may also need to pay an LLC Estimated Fee. This is because you as a Member of the LLC residing in California are likely doing business in California. The LLC is also doing business in Arizona, so the LLC will also need to be registered there.
Regarding personal state income taxes (the LLC’s income will flow through to you and your husband if the LLC is taxed like a Partnership), you’ll want to speak with an accountant (or a few) to unpack the details. You may end up paying all your taxes in California or you may apportion the income between California and Arizona. A bit overwhelming, I know. Just take a few days at a time. You’ll have more clarify in a couple of weeks.
I read that: in LLC Court Cases throughout the US, choice of law is well established to apply the law of the state where the entity is formed, instead of the state where the court sits. With this mind, and understanding the extra expense, doesn’t it pay to form the LLC in Wyoming, even if I live in NY if I want liability protection?
Hi Marky, what you read is most likely about the Internal Affairs Doctrine. For example, in a dispute between two Members of an LLC, the law of the state of formation will usually apply. For contracts, torts, and other lawsuits, there are numerous “tests” courts will apply to determine which state has jurisdiction. As a general example, if your LLC is formed in Wyoming, but is doing business in New York… and your LLC enter into an agreement in New York, and then breaches that agreement, New York law will likely apply and not Wyoming.
I’m interested in a Wyoming LLC. The purpose would be making financial investments.
I live in Alaska but will not have any clients. Is it OK to have a Wyoming LLC?
Hi Bob, if you form an LLC in Wyoming, but you’re doing business in Alaska, you’ll need to register your Wyoming LLC as a foreign LLC in Alaska. No states define what is doing business, but rather, they define what isn’t doing business to allow the state flexibility in determining when an entity is doing business in the state. If you’re running this business from home in Alaska, your LLC will be considered doing business in Alaska. Here is the list of what is not doing business in Alaska: Section 10.50.720 of the Alaska Statutes. Here are the penalties for failure to register a foreign LLC: Section 10.50.700 of the Alaska Statutes. Hope that helps.