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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.
Hi Matt,
I have formed my LLC In Wyoming 2021 as a non us resident, I own a dropshipping business and sell products worldwide and also to the US and non US customers, I know I am only subject to pay sales taxes since I am not a resident in the United States of America.
In 2022 I had the principle registered office in Wyoming then changed it in Nov to Delaware, Do I still have to pay taxes for the year 2022 to the state of Wyoming or Delaware?
Until now, I haven’t filed any taxes report for the last year.
I am very confused here.
Thanks
Hi Kamel, we recommend speaking with an accountant that specializes in working with non-US residents.
Thank you for the fantastic service you provide. I live in Wyoming and self employed 1099 contractor for a mortgage brokerage based in Colorado. I have 2 questions.
1. If I originate loans in both states does it make sense to set myself up as an LLC in Wyoming? I’m not clear on where the income is considered to be coming from? But I would like to hire an assistant that would be based in Wyoming.
2. I own a residential property in Colorado with 2 other people that live in Florida that is being converted to a rental. I was told that I can put that property into its own llc to gain both legal protection and tax improvement. Since I carry the mortgage I am not sure what either of those would mean to me?
You’re welcome Stan. I’d check with the brokerage to make sure an out-of-state LLC is fine. If not, you can form a Wyoming LLC and then register it to do business as a foreign LLC in Colorado. For an LLC taxed in its default status (Multi-Member LLC taxed as a Partnership) there are no tax benefits. Just liability protection benefits.
You can ask your lender if they’re comfortable with you switching title. Some lenders are, some aren’t. If they’re not, and your adamant about transferring title to the LLC, you can speak with a few real estate attorneys in Colorado re: a quitclaim deed and any potential risk re: your mortgage. Hope that helps.
Hi Matt,
Thank you for all these good informations.
I would like to start business establishing a US company (LLC or LLP). I am living in Europe.
As am not a US resident, have no US income, do I have legally a reason to establish a company in the US?
If yes, can I sell goods via an LLC or LLP or this form of company only for services?
Do you also offer help to establish a LLP?
Thank you very much for your help and have a good day.
Isabelle
Hi Isabelle, I’d say a US LLC for non-US residents is much more common than an LLP (and no, we don’t have info or services regarding LLPs at this time). And yes, you can sell goods via an LLC. They are not restricted to just services. If you’re looking for help setting up a US LLC, check out Doola. Hope that helps.
I live in NY and I’m sure you’ve been asked this before, but mostly from, what I’ve seen, pertaining to CA. I want to set up an LLC here and do business here but have heard to open a Holding in WY then set up NY LLC with the WY LLC as owner, and all income going into the WY LLC (with NY owning the assets) . Would that be wise? I’m not planning on going major with this LLC, (small farm and rental property)
Hi Laurah, you can form a Wyoming LLC that owns a New York LLC that owns a small farm and rental property. However, given what you said, I’m not sure there’s much point. And it could end up being more of a headache logistically.
I have a service-based online business and don’t have a permanent address. For the next couple of years, I’ll be traveling nursing with my husband – moving to different cities and states every few months.
What are your thoughts on registering my single-member LLC in WY?
Hi Barbara, you could form a Single-Member LLC in Wyoming for that. I’d also check out Ohio, a state I like and recommend. Private, just like Wyoming. $99 to form an LLC, only one address on the Articles of Organization, and there’s no Annual Report.
I have an LLC in Connecticut where I reside and I’m in the process of having rental property under that LLC. Is it too late to create a parent LLC in Wyoming because I created one prior in CT? Not sure if parent needs to be started first. If not too late, would creating that Wyoming parent LLC give me any anonymity/asset protection? Would having a digital address in Wyoming help at all? If not, is there any way to have anonymity and asset protection residing and having CT LLC with a Wyoming parent LLC? I’m just trying to set things up correctly and get the best protection, if possible.
Hi Andre, you can form the Wyoming LLC at anytime. Then you can transfer your 100% LLC Membership Interest of your CT LLC to your WY LLC. This can be done via an Assignment of LLC Membership Interest form and by amending the Operating Agreement. You’ll also need to amend the CT Certificate of Organization to change the Member/Manager information. You might want to work with an attorney to get all your documents done correctly. Hope that helps.
Or … don’t be a panzy …
Form the LLC in Wyoming … you have your anonymity, and it’s cheaper than Nevada.
Pay your Foreign LLC Certificate for your home State you reside in like everyone else does … get the frack out of California … and wala … you’re done.
This is actually good advice. I notice that it depends on who the LLC owner is. If they are newer, less experienced, and have more fears and uncertainties (and less money to spend), the Foreign LLC registration can feel a bit overwhelming. If someone is more experienced and doesn’t mind the extra cost, form the LLC in your desired state and then foreign qualify in the home state. This is also helpful since people are moving more these days. So you’ll always have a “base LLC” in Wyoming. Then if you move, foreign qualify in the new state, and cancel the foreign qualification in the old state.
Hi Matt
I have opened an llc in Wyoming to be holding llc in florida that will hold property and flipping houses im runing my property specific expenses per project though the florida llc’s and my general business expenses ( gas, car expense meals )through the Wyoming one.
I’m living in florida am i doing it right?
Thanks in advance!
Hi Ben, you could do it either way. I’d speak to an accountant to see if they have a preference or recommendation.
Matt, thank you for a very informative Web site. It seems to have most answers for using a Wyoming LLC. My Sister and I formed a LLC Partnership for some rental property we own in Wyoming. My sister lives in Oregon and I live in Idaho. She has received rental payments and paid expenses incurred from her apt in Oregon. Do we have to file Oregon state tax returns? Our Registered Agent is in Wyoming.
Hi Doug, you’re very welcome. Typically, LLC owners pay taxes in their home state, not the state where the property rents are received. And where the Registered Agent is located has no impact. In some states, people still need to file a return in the “property state” and then apportion their income to their home state, but since Wyoming has no personal state income tax, this likely doesn’t apply. However, we’re not a tax firm and recommend checking on all this with an accountant.
Hi! I’m a Canadian citizen looking to start a short term rental business in the US. If I were to open my corporation in Wyoming and have rental properties in Florida, would I need to create a foreign LLC in Florida?
Yes, that would be the correct way to do it. You could also consider forming a Wyoming LLC that owns a Florida LLC (or LLCs). And the Florida LLC owns the property. You should also check with an accountant, as Canadians are typically double taxed with US LLCs.
I have only heard this (don’t form in Wyoming) be the case if you are doing business in California. Even in the case that you plan to do business in both Wyoming and California, you’d probably be better protected if you just form 2 separate LLCs. It’s no secret that California businesses are among the least protected. However, I have to respectfully disagree about the part where you said something along the lines of “you shouldn’t pay for 2 LLC filings for something you’ll most likely never have to use”. It’s like insurance. Otherwise people might as well only form sole proprietorships or GPs, unless the quality for s-corp status, but only because of the tax benefits.
Great points Ray. Thanks for your comment. For those who aren’t worried about costs, and are a bit more savvy/comfortable, forming an LLC in Wyoming and foreign qualifying in California… and then cancelling that foreign qualification when they move out of California is one option to look at.
Hello Matt,
A couple of other comments:
I notice many websites offering to obtain LLC’s complete and ready to go – as in start selling. Most states have a requirement to also file something at the local (village or county) level. When I have inquired about how service on a local level is accomplished, these website state they don’t do it. Seems that they are all offering incomplete service? Wyoming doesn’t have business registration at the state level but only at the local level, so it is a bit different?
Do you know if there is available a complete list of nexus requirements for each state compiled into one document for easy reference? Thanks in advance!
Hi Mario, that’s common. It’s because there’s thousands of licensing jurisdictions in the US, and LLC filing companies don’t specialize in licensing laws. And a large number of LLC owners don’t need a local license or permit to operate. And unfortunately, no, I’m not away of a complete list of nexus requirements for each state.
Hello Matt,
Thanks for answering everyone’s questions.
I am an US citizen expat living and working in Vietnam full time for many years now. I am domiciled in NY, but do not pay taxes there. My bank account has an address there. I am opening an e-commerce drop shipping website and need to set up a company and obtain tax authority.
I want to start in the US, and then activiate the site to do sales in Europe and elsewhere outside the US. I am not inclined to set up an LLC in NY and consider Wyoming or Montana as better options. I also have an exempt corporation in the Cayman Islands. I am considering my options:
1) Have the Cayman Island Corporation open an LLC subsidiary in Wyoming and keep an office there, file for tax authority in Wyoming;
2) Open a sole proprieter LLC in Wyoming myself, keep an office in Wyoming, file for tax authority in Wyoming;
3) Conduct business directly under the Cayman Corporation – the Cayman Corporation is the owner of the e-commerce shop. I consider the possibility that some customers may not want to purchase from a company in Cayman/prefer to purchase from a US company – unless there is a way to not show the address as Cayman (show nothing), a Cayman website is not preferred.
Which is the best option? What if I return to the US for a few months or a couple of years? I am not sure where I wouold live in that case. Thank you in advance!
Hi Mario, you’re very welcome. With any of those scenarios, I wouldn’t worry about when you return the US. It doesn’t matter since you’re a US citizen. To comment on which is best, is beyond me. I don’t deal with Cayman Island Corporations so can’t speak to that. However, for #3, it would probably be best to operate through a US LLC subsidiary (US LLC owned by Cayman Corp). However, the pros/cons between 1 and 2, I’m not sure. I’d speak with a few tax attorneys familiar with offshore entities to get some clarity.
Matt – thanks for your wisdom. Very grateful.
Curious- Assume we don’t reside in Wyoming and operate as a digital nomad around the country/world …. if my Wyoming LLC is involved in a lawsuit, you mentioned the courts have discretion on which state laws apply – does this make the Wyoming legal (corp veil-wise) protection useless? or are my personal assets still protected (corp veil wise) in a lawsuit?
In other words, does the fact that I don’t reside in Wyoming make my WY LLC any LESS of a legal protection corp-veil wise than had I done a LLC in my “home” state ?
Thanks Matt!
Hey Etia, you’re very welcome. And great question. The answer is no, your Wyoming LLC isn’t a weaker LLC from a corporate veil perspective than a home-state LLC. Hope that helps.
Hey Matt,
I have an app that is main and only revenue source is Google ads. Since Google LLC is located in Delaware, I assume I should form my LLC in Delaware as well? Or, if I form in Wyoming, I would have to reigster in Delaware as a foreign entity?
Hi George, where an LLC should be formed (or registered as a Foreign LLC) has to do with the states’ laws regarding “transacting business”. And that has far more to do with where you are running and operating your business from. It doesn’t have anything to do with where a company that pays you is located. Hope that helps.
You didn’t mention…
– Liability implications for Wyoming compared to California. Asset, Corporate, Personal liabilities change.
– What if he forms the LLC in CA but does business in CA, OR, NV, UT and WY…? No impacts mentioned in the article.
Hi Chris, you’re right, this article could use an update and we could expand upon a few additional things. Thank you for your feedback.
Hi Matt,
Here’s a thought experiment. Would forming a holding company llc in Wyoming, New Mexico or Delaware worthwhile if you won the lottery in one of the many states that doesn’t allow anonymity?
Are there any downfalls you see with the holding company strategy?
What would you do if you won the lottery in a non anonymous state and wanted those details to remain anonymous, but also to protect your windfall?
Hi Colin, interesting question. I actually have no idea as I’ve never thought of this. Apologies I couldn’t be more helpful. Good luck… hope you win!
Hi Matt,
This is great information. I formed an LLC in Arizona where I currently live, but the rental property is in Michigan. I have already registered it as a foreign entity in Michigan, but I’m wondering if I should just convert the same LLC to a domestic Michigan LLC since I do not conduct any business in Arizona? If I do that, would I then just dissolve the Arizona LLC once Michigan becomes the home location? Or does it not make a difference if I eventually don’t live in Arizona anymore?
Secondly, I have another LLC with Michigan as the home location. Do I have to also register that LLC in the actual state I live in, or is ok as long as the LLC is registered in the state where the rental property is?
Because I may move from Arizona soon, I want to make sure I have a full understanding of this.
Hi Al, please double-check this, but I believe Michigan doesn’t allow for domestication. So you’re left with foreign qualifying an LLC or dissolving the old LLC and forming a new LLC. However, the later that would involve transferring title of the property. Another thing to look into is an LLC merger, however, we recommend hiring an attorney for that.
Where an LLC needs to be registered has to do with where it’s “transacting business” (aka doing business). Typically, you won’t need to foreign qualify your Michigan LLC if it’s not doing business in your home state. The exception to that would be if you move to California since California is really strict.
Hi Matt
Thanks for this great article and help! I live in Washington and plan to purchase a property for rent in WA state. The WA LLC ownership information is unfortunately public. For privacy reason I am thinking of setting up a LLC in Wyoming which will own the property in WA state. I believe I need to register the WY LLC as a foreign LLC in WA state. Would this setup makes senses? Or do I need to create another LLC in WA State and make the WY LLC owner of that LLC?
Thanks a lot!
Hi Blake, you’re very welcome! Either setup may work, however, I don’t know off the top of my head. I’d recommend reviewing the forms for domestic LLC formation and foreign LLC registration and see how they compare. Additionally, you’ll want to look at the Annual Report filing and the Washington LLC Business License (aka bulk registration). You’ll want to look at how the forms need to be completed and what information is required. Having said all that, my guess is there may be more privacy with a Washington LLC owned by a Wyoming LLC as opposed to a Wyoming LLC with foreign qualification in Washington. Typically, I can answer these question with more specificity, but the Washington LLC Business License is annoying and has a lot of variability to it (and there are city licenses, too). For either setup, you also want to hire a Washington Registered Agent and hire someone to form your LLC(s) so they sign as the LLC Organizer and not you. Hope that helps and thanks for your understanding.
Hi Matt I have a question. I’m a day trader and I’m looking for a state to file an LLC to incorporate my trading firm to better organize my taxes. Though I don’t “run an online business” I have a residence (apartment) in PA. Do I need to register an LLC there and pay taxes in PA even if I spend 6 months each year in Europe and spend less than 40 days a year in PA outside of holidays with family? I intended to file a Montana LLC for my firm since the state is favorable to cryptocurrency-focused businesses. What constitutes operating my business if I’m on the road so often?
Hi Uri, we recommend confirming with an accountant: You’ll pay income taxes in the state where you’re a resident. Even though you travel a lot, that means you’ll likely file taxes in PA (regardless of where the LLC is formed). The next question: if you form an LLC in Montana, do you need to register it as a foreign LLC in Pennsylvania? Unfortunately, states don’t define what is “doing business”, but rather, they have a limited list of what isn’t doing business (for PA, see Section 403 of Title 15). This gives states the power to interpret each scenario differently. Most of the answers are buried in case law, so we can’t give you a black and white answer. However, unlike most states that have financial penalties for failure to register as a foreign LLC, PA is more laid back in that an un-registered foreign LLC can’t sue in PA unless it registers as a foreign LLC (Section 411 > b of Title 15). Hope that helps.
Hey Matt,
This is a great article and a lot of helpful questions & comments from the peeps and yourself – thank you!
However, I have one question myself if possible. I have a LLC in Wyoming but I am living in Europe, Spain where I pay all my (income) taxes. The reason for the LLC in Wyoming, is that I run Google ads for a lot of businesses in many different States.
The reasoning behind it was that it would be easier for those businesses to pay me in a US bank account rather than having to annoy people with cross-border transactions to Spain.
I was under the impression (and have been told) that I have no tax duties, or any filing duties in the US because I am not a US resident and I don’t have the SSN number either, so I would only be liable for tax in Spain (which I do pay). Is this correct or am I heading towards a major headache with the IRS?
Thank you for your time in advance!
Lez
Hey Lez, thank you! Unfortunately, it’s a complex question that we don’t have a black and white answer to. We’re also not tax specialists, so we recommend working with an accountant who does taxes for non-US residents. There is a chance you might not have a US tax filing obligation. Again, it depends on a number of factors. Thank you for your understanding.
Hi Matt, Thank you so much for all the insights!! My goal is to remain anonymous since I don’t want to link my name to a porn film business. I like the idea of Wyoming since you can have a registered agent on your documents without disclosing any information about you personally. I live in California so if I filed a Foreign Entity for CA. Could I still find a way to be anonymous to the general public? I am ok with fees and taxes, etc. I just want to be as anonymous as possible. What would you recommend?
Hi Larry, you’re very welcome. You can look into forming a Wyoming LLC that owns a California LLC. You’ll want to hire a filing company to form the LLCs (so they sign as the LLC Organizer). And you’ll want a Commercial Registered Agent that allows you to use their address throughout the Articles of Organization and the subsequent Annual Report filings. We recommend Northwest Registered Agent for both. This setup will help with the California LLC Statement of Information. You’ll be able to list the Wyoming LLC as the Member or Manager instead of yourself. Hope that helps.
Hi Matt,
Thank you for writing this helpful article, you are a great man for doing this. I have 1 question if you don’t mind:
1) If I create a holding LLC and an operating LLC in the same state (MA), will that automatically give me the same or similar tax benefits as what you would get from tax trader status (even if I don’t qualify for tax trader status)? The purpose of the operating LLC would be to trade / invest in Forex / Wall Street.
Thank, any feedback is greatly appreciated!
You’re very welcome Joe! We’re not familiar with tax rules for day traders. I recommend reaching out to Brian Rivera of Trader Tax CPA. He may be able to help. I don’t know him personally, but I found him on Youtube and he seems pretty solid.
Matt, thanks for the helpful article and all this detailed help to complex scenarios. Perhaps you can help me in considering this one. I am looking to incorporate an LLC to hold oil royalties/ownership of royalties. The royalties apply to wells in Texas and the business that operates those is in TX. My bank account is in TX. Since the “business” is just holding investments, can I file in WY or will I just end up needing to file the foreign LLC and 750 fee in TX if I do that?
Hi Mike, you’re very welcome. We recommend confirming this with an attorney or two, however, as per Section 9.251 (#13) of the Texas Business Organizations Code, investing in or acquiring a royalty or non-operating mineral interest outside of Texas isn’t considered “doing business” in Texas. So one could assume doing so in Texas would be “doing business” in Texas. If that stands, the Wyoming LLC should be registered as a foreign LLC in Texas. Hope that helps.
Hello
I just finished reading all the comments. I learned more than 2 previous weeks of other sources
Just by reading your comments. THX.
I found alot of misinformative websites in Poland Eastern Europe , that open LLC in Delaware or Wyoming is supereasy. Than I read some comments about difficulties in opening bank accounts in Poland for this companies(considered banned)
Nevada is better.
I am born and raised Pole, living in Poland working for many Universities in Europe. I would like to build agency for quality assesment in heigher education and Universities. I wached Loundromat – netflix movie and I was wondering , if it would be possible to start Wyoming LLC ( owner would be my Limited Company – i own shares, i am CEO, it has its own legal entity, or me personally) as agency.
For first 3 years there would be no income. I need to make accreditation criteria, accreditation board( out or European Universities employees) and award Accreditation to Universities thet apply and provide Accreditation Board members.
After enough (30) Universities from all European countries cooperate with my LLC, and I have 30 Accreditation Board members(who are not employees) i 30 accredited universities , and recognition from european oversight institutions I would like to charge other Universities from around the world. This is when revenue for the LLC would start…
Or maybe C corp would be better.
Do I need an addres?? Do I need agent/accountant? What would be cost of opening business, and costs of running it for 3 years without revenue or costs? Why I am considering WY ??? Who would want Accreditation from Polish organisation… but all look up to USA… its International for all my european partner Universities … and is better than Polish. Its not planned to be a scam…. it’s set up to be reputable , good quality assesment and good practices exchange… but it will take around 3 years…. How hard is it to open bank account in USA after 3 years of existing without revenue or cost (i will read now, i opened your link in new window :) I can fly over… once Covid is over …
Hi Ernest, that’s so awesome you learned so much from just the comment section! :) While I can’t comment about how easy/difficult it is to open a bank account in Poland for a US LLC, I can link you to a helpful resource we have: How non-US resident can open bank account for US LLC. There are options for an online bank and/or you can visit the US to open a bank account. You’ll want to call the bank ahead of time and send your paperwork for review before flying over.
I’ve seen Laundromat too. Yes, you can certainly form an LLC in Wyoming… or any state you’d like if there are no physical activities in the US and no employees. Depending on the state, the LLC will need a Registered Agent address, a Principal Business address, and sometimes a Mailing address (depending on the state, they may be called something different). However, if you hire Northwest, they will be the Registered Agent for your LLC (in whatever state you choose) and they’ll let you use their office address as the Principal Business address, the Mailing address, and any other address fields in the LLC filing.
You can also look into states that don’t have an Annual Report filing (see LLC fees for every state). I personally think Ohio is a great state. The state fees are very reasonable (below the national average), there is just one address in the LLC filing (the Registered Agent address, which is called a Statutory Agent in Ohio), and there is no Annual Report. Hope that helps :)
What are main differences in Ohio, Arizona (no anual report in both, Arizona close to Vegas amd Los Angeles) and Wyoming and Delaware.
Ohio and Arizona dont have annual report… that is great.. only annual cost would be Registered Agent with Address, and thats 135usd per year. I am leaning towards Ohio and Arizona than…
Hi Ernest, from a general perspective, it’s really challenging to compare numerous states. However, if you’re not doing business in the US and you’re just focused on cost, we like Ohio. Wyoming and Delaware have annual fees. While Arizona doesn’t have an annual fee, there is an Arizona LLC publication requirement. Hope that helps.
I. am an IC nurse practitioner working at a federal site in South Dakota. I live in and am licensed as a NP in Texas. I can use my Texas license as it is a federal government healthcare site. I am considering forming an LLC in Wyoming as both Texas and South Dakota require a Professional LLC and I am unable to find any useful information on the requirements to do so.
All of my services as an IC (therefore myLLC) are in South Dakota.
Texas, WY and SD have no state income taxes but I know Tx has a franchise tax.
How is all this going to affect me if I continue with this plan?
Hi Robin, we recommend speaking to a few attorneys about this, specifically in the state(s) where you will do business. Navigating Professional LLC statute and medical statute can be challenging. If you form an LLC in Wyoming but are doing business in South Dakota, you’ll need to register your LLC as a foreign LLC in South Dakota. However, your Wyoming LLC (registered as a foreign LLC in South Dakota) may not be able to render professional services since the laws of South Dakota will apply, not the laws of Wyoming. Hope that helps a bit. Apologies we couldn’t be more specific in our reply.
Hi Matt,
I really appreciate all of the information and wish I had come across it sooner as I feel I might be in trouble after reading your article. I am a “Stephen”. I live in California and set up a sole member LLC in Wyoming for my online business that does 99% of sales through Amazon and Ebay. I was unaware that I had to file my LLC as a “foreign LLC” in the state of California since it is considered a “domestic LLC” in Wyoming. I have 2 questions:
1. Do you recommend that I open up another LLC in California, run my online business through the new one while still registering my Wyoming LLC as a “Foreign LLC” in the state of California to avoid fines and penalties so that I essentially have 2 LLCs (The new California one and the Domestic WY/Foreign CA) or do you recommend just using my “Foreign LLC” and not bother creating a 2nd one?
2. What are the benefits to having an LLC in Wyoming when you live in California and have an online business? From what I’ve read in your article, it doesn’t make sense yet there are other bloggers that swear it’s one of the best financial moves for your LLC that you can make.
Appreciate the info and looking forward to hearing back from you.
Hi Joshua, you’re very welcome. Regarding #2, it’s because most of those websites don’t understand the full picture. If you have a Wyoming LLC registered (or unregistered) that is doing business in California and your LLC is sued for breach of contract or a tort in California, California law will most likely apply. And even in more advanced “recommendations” (like a California resident owning a Wyoming LLC that owns a California LLC), most websites also oversimplify that as well. Meaning, if you’re personally sued in California, the charing order protection of Wyoming may not apply and California law will most likely apply due to the California courts’ jurisdiction over intangible personal property (the Operating Agreement/LLC membership interest). Generally speaking, to get the benefits of Wyoming laws, one would need to reside in Wyoming and/or do business in Wyoming.
The wording of question #1 is all correct (the details are accurate), however, I don’t understand the premise. What is the point of forming a new LLC in California… what would the new California LLC do/be used for?
Hi Matt,
I have a California LLC that holds my self-directed IRA. I conduct no “business” other than investing in stocks through a brokerage account, make loans, by debt and judgments, hold dividend and royalty paying instruments etc. My question is: What technically constitutes conducting business? Nothing that I do involves selling product or providing services.
Hi David, please see here: When is an LLC doing business in California. There are a number of applicable statutes and case law, however, starting with Section 23101 of the Revenue & Taxation Code, partaking in any transaction in California to make money is considered “doing business”. Also, Section 23102 says trading in stock, bonds, or other securities is also “doing business”. California is one of the most far-reaching and aggressive states when it comes to the laws of “doing business”.
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.
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 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 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.
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 :)
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,
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.
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,
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.
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.
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 :)
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.
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.
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 :)
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,
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:
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!
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 in Section 17708.03 of the California Corporations Code:
https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CORP§ionNum=17708.03.
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.
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.
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!
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.
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 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 Stephan, is the purpose of the LLC to hold rental properties? If so, where are the properties located? Approx. how many properties? Do you want them owned by one LLC or owned by multiple LLCs? There’s a few ways to “chop things up”. And the fee is not $20. Foreign LLC registration in Tennessee is $300 (unless there are more than 6 Members).
Thank you, Matt.
The purpose of the LLC to hold CA rental properties. Currently, 2 locations (subleased) in the same building in CA to be owned by one LLC.
I saw $20 for “Application for Registration of Foreign L.L.C. Name (ss-4236)”. Ah, I do see that a regular LLC registration in Tennessee is $300. Perhaps it is 20+300.
Hi Stephan, that is the incorrect form. That form is used, in addition to regular foreign LLC form, if your LLC’s out-of-state name isn’t available for use in Tennessee.
As presented, it sounds like you’re doing business in California (since that’s where the activity is) and in Tennessee (since that’s where you are running the business from). Again, there are a number of ways to structure things. We recommend speaking to a few tax attorneys.
You could form a Tennessee LLC and register it as a foreign LLC in California. You could go the other way around, too (form a California LLC and register it as a foreign LLC in Tennessee). This is likely the simplest setup.
You could also form a Tennessee “Parent” LLC. Then this Tennessee LLC owns “Child” LLCs in California. Each California LLC could own a different property, or numerous properties. It may be easier to go this way (as opposed to the opposite arrangement) as California is very strict regarding the rules of “doing business”. Tennessee has “doing business” rules too, however, they are less aggressive than California. Apologies we can’t provide a “here’s the best setup” reply. Again, there are a lot of different ways you can structure this. Hope that helps and thank you for your understanding.
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!
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.
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.
I understand the WY LLC owns the state LLC’S and the state LLC owns the property in the state where they are formed, my question is if I own 2 properties in AR and 5 properties in KS, should I have 7 state LLC’s where each property is owned by an LLC, or should one LLC own the 2 properties in AR and another LLC own the 5 properties in KS? Ultimately I am wanting to know should I have 7 LLC’s or 2 LLC’s at a state level?
Hi T.D., apologies for the slow reply. There isn’t a perfect answer to this. Some suggest separate LLCs for each property depending on the value and liability risk. However, there is an administrative burden for each additional LLC. For example, each LLC needs its own EIN and its own bank account and tasks like bookkeeping can be more tedious.
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!
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.
Thank you for your web info. What about forming a WYO LLC to simply hold a rental property located in California? I heard an attorney seminar recommending this. If transfer of a CA deed does not trigger any property reassessment. It seems there are advantages of this.
Do you possibly agree?
Hi Gregory, in this scenario, the Wyoming LLC would be doing business in California and needs to register as a Foreign LLC.