Wyoming Limited Liability Companies
A Wyoming LLC is a great entity for a beginning business that:
Wants to invest in assets that will appreciate over time
Is intended to be an estate-planning vehicle to transfer wealth to the next generation
Wants its owners to hold their interests in the names of other entities or trusts
Wants to be able to sell ownership interests all over the world
Wants to provide its owners with flow-through taxation
Wants to divide up the profits and losses in ratios other than strict ownership percentages
Wants to protect its assets from creditors
A Wyoming LLC is also a great and protective entity for holding real estate assets. Properties held in an LLC are easy to transfer, and incur less tax on subsequent sale than would be assessed if that same property were held in a corporation. LLCs work well for family asset based entities, where the goal is to increase the family wealth, plan for the future, and maximize tax savings. You can also put your paper assets into a separate Wyoming LLC for greater and segregated protection.
Of all the entity choices we have, limited liability companies (LLCs) are the youngest. Prior to 1977, LLCs were not recognized in the U.S. Germany was the first to provide for such an entity (known as the GmBH) that exhibited characteristics of partnerships and corporations over a hundred years ago. Wyoming was the first state in the U.S. to allow the formation of such an entity. Now, all states have adopted laws that allow for the formation of LLCs, but each state’s treatment of LLCs varies. LLCs provide both the limited liability protection found with corporations and the flow-through taxation of a partnership.
They allow you to divide up profit and loss allocations among the owners in varying ways – and not based strictly on ownership percentages as is required in C and S Corps. Ownership may be held by individuals, corporations or trusts, and there are no restrictions on where owners live either inside or out of the United States. Annual meetings are not required but are strongly recommended, both as a good method of communication between the managers and the members and as a way to establish that the LLC is a distinct, stand-alone entity. That last point is important because when formalities are not followed, creditors may attempt to pierce the veil of protection.
A Wyoming LLC is formed when one files a document titled the “Articles of Organization” with the Wyoming Secretary of State. The Articles provide general information about the LLC as required by Wyoming law. The internal documents, such as the Operating Agreement, provide the LLC’s operating details and the nature of the relationship among the LLC’s members. Whenever a dispute arises as to voting rights, distributions, or other internal operations, the Articles and Operating Agreement should provide a clear solution or a procedure for resolving the dispute.
The Wyoming LLC offers flow-through taxation, flexible management, limited liability for all owners, and flexible distributions. One of the desirable characteristics of an LLC is that income “passes through” an LLC and is not taxed at the entity level. Income earned by the LLC is taxed to the LLC’s members as ordinary income. That income can be distributed or retained by the LLC.
In a Wyoming LLC, the owners are called “members” instead of shareholders. They receive “membership interests” instead of shares based on the value of assets or services contributed by each member. Adding members to an LLC has the effect of reducing the holdings of existing members.
To illustrate, compare LLC ownership to slices of a pie. Each partner has a slice based on his or her initial contribution (or some other basis set forth in the Operating Agreement). To invite another member into the LLC, one or all members must give up some of his or her interest in the LLC, thus diminishing their piece of the pie. Accordingly, LLC members generally must approve the admittance of a new member to the Wyoming LLC.
This differs from a corporation, where the corporation may have retained some of the pie for later distribution to new shareholders. So shareholders need not always approve the corporation’s sale of stock to new shareholders. This distinction may be confusing fort those who are familiar with corporations and the effects of issuing shares, so caution should be exercised to differentiate between LLC membership interests and shares of corporate stock.
Still, the Wyoming LLC offers excellent asset protection laws for the benefit of Wyoming LLC members.