Why You Shouldn't Form an LLC in Wyoming

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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:

 

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:
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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.

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 it 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

http://wyoleg.gov/statutes/compress/title17.pdf
http://www.wyomingbusiness.org/content/licensing-and-permitting
https://soswy.state.wy.us/Business/ForeignCertificateofAuthority.aspx
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 Horwitz
Founder & Educator, LLC University®
Forming an LLC shouldn't be so complicated. Our step-by-step guide will make the process a breeze – and no complex legal jargon! LLC University® teaches people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your business journey.
Disclaimer: Nothing on this page shall be interpreted as legal or tax advice. Rules and regulations vary by location. They also change over time and are specific to your situation. Furthermore, this comment section is provided so people can share their thoughts and experience. Please consult a licensed professional if you have legal or tax questions.

12 Comments

  1. Bell October 22, 2018

    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

    reply
    • Matt Horwitz November 22, 2018

      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.

      reply
  2. Rohan Saw December 4, 2018

    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.

    reply
  3. Blair December 24, 2018

    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

    reply
    • Matt Horwitz January 6, 2019

      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.

      reply
  4. Dejon February 14, 2019

    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.

    reply
    • Matt Horwitz February 15, 2019

      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.

      reply
      • Dejon February 16, 2019

        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?

        reply
        • Matt Horwitz February 18, 2019

          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.

          reply
  5. Mary Lawler June 26, 2019

    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

    reply
    • Matt Horwitz June 27, 2019

      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!

      reply

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