Wyoming has earned a reputation inside the incorporation community for its tax. asset protection and privacy advantages. Here we will seek to separate the Wyoming LLC myth from what you can reasonably expect. Learn more here about Wyoming, Delaware, Nevada and New Mexico LLCs and how to form a New Mexico LLC here.
Wyoming LLC Taxes
Many Wyoming LLC formation services frequently cite their state's lack of personal and corporate income taxes as a major advantage. This, however, ignores the fact that LLCs are taxed as pass-through entities and do not pay corporate taxes. This reason alone is often sufficient to drive clients toward a holding company in New Mexico.
The tax bill for your LLC will flow through to the members (owners) and their personal residency will determine what taxes are due. That is, if you live in Ohio, then you will be paying Ohio income taxes regardless of where you organized your LLC.
Simply doing business in Wyoming is not sufficient to enjoy the tax benefits, you must also live there. This means Wyoming and New Mexico LLCs are the same when it comes to taxes. You will be subject to the taxes of where you live, not where you organize your limited liability company.
Wyoming LLC Privacy
Others are drawn to Wyoming companies for the privacy that they offer. Wyoming's Secretary of State does not require that members, managers, officers or anyone else associated with the company list their information publicly. Only the registered agent's information must be public. However, you MUST provide a complete list of members and managers, along with a phone and contact address (which cannot be a PO Box) to your registered agent. Their Secretary can demand to see this list at anytime under new statutes passed last year.
New Mexico LLC Privacy: Our state does not require that we maintain any information on our companies. Our state cannot demand this information either without probable cause. This means a New Mexico LLCs enjoy better privacy from the long arm of the government.
No Asset Protection Guarantee
Wyoming does have asset protection laws, but these are not as good as they may seem at first. That is because anyone who is out of state, like most LLCs, will have to deal with conflicting laws. In that situation, the Wyoming asset protection laws become irrelevant and lose their benefits.
Without taking that into consideration, however, the asset protection laws of Wyoming seem like a very good reason to choose this state for an LLC. The laws for asset protection in WY protect LLCs from charging orders. In other words, creditors cannot force Wyoming LLC owners to sell their ownership to pay a debt.
In the case of charging orders, creditors can receive distributions from ownership interest. They cannot, however, sell or transfer that ownership. This can improve negotiation abilities for settlements. Wyoming extended the limitation on charging orders to include a single-member LLC. By contrast, this exemption does not exist in other states.
As mentioned, however, this only provides a benefit in lawsuits within Wyoming. Otherwise, there will be a conflict of laws and a judge may decide to apply the laws of the other state.
Recognition of a Series LLC
One of the many apparent advantages of a Wyoming LLC is the ability to form series LLCs. Series LLCs are excellent ways to limit liability by segregating the assets as well as activities across several series. The issue, however, arrives when dealing with lawsuits filed in states that do not recognize series LLCs.
There are still many more states that do not recognize a series LLC than those that do. If a lawsuit originates in a state without series LLCs, the judge will likely apply that state’s law.
This would mean disregarding the status as a series LLC and considering it as a regular Wyoming LLC. This, in turn, eliminates the benefits of a series LLC. So far, no court cases in the appellate have ruled in favor of series LLCs retaining their series status in this situation.
Given the above points, it is clear that there are both positive and negative aspects to Wyoming LLCs. Before choosing to form one, carefully consider your options and consult a professional to avoid future problems.