Why Incorporate in Wyoming
- Wyoming is a prevalent choice as one of the best states to form an LLC or Corporation entity.
- A Wyoming LLC is wildly popular for e-commerce sellers looking for an extra layer of privacy, as they don’t want to disclose their brand to their competitors or their students. When you go to an e-commerce event and speak to other sellers, they may share strategies or tips, not their product or brand name.
- There are several factors to consider when deciding if a Wyoming LLC or Corporation is best for your situation.
- As expected, there are several online blog posts, and their information seems to contradict each other, even those by attorneys and CPAs. This will help to clear up some of those contradictions.
Are you a U.S. Resident vs. Non-U.S. Resident?
- If you are a U.S. resident and form an LLC in Wyoming and live in another state, that changes the benefits you believe you are getting when you form a Wyoming LLC. Does that mean you should form an LLC in your home state? Not necessarily.
- It will help if you understand the advantages of formation and what happens when you foreign qualify to do business in your state (based upon some assumptions).
- At this point, you will decide what advantages will be minimized or lost completely. Is it investing in two states?
- In many cases, the answer may still be yes, although every website will say, “you should never pay two state fees. What a waste of money.”
- I am sure, and as a business owner, you can find a better way to save $20-$50 per month (by being more productive, planning your day, less social media) that more than offsets the “two-state fees” concern.
- A non-U.S. resident has the luxury to pick and choose which state would be best to launch their e-commerce business.
- Although you are not required to have a U.S. entity to sell on Amazon.com, it is prevalent for many reasons, including separating liability from the foreign e-commerce business, obtaining product liability insurance, and investors more comfortable buying your U.S. brand from your U.S. company.
- It is widespread for a U.K. resident to be selling on Amazon throughout the E.U. via a UK LTD, then expand to the U.S. and form a U.S. single-member LLC owned by the foreign U.K. limited company. There are many steps involved in the process, and knowing how to fill out the SS4 application for each entity is critical.
- U.S. federal and state sales tax issues and concerns – more on that later – are still involved in each situation.
Let’s address and dive deep into each of the Wyoming advantages to see if it will benefit your situation, keeping in mind whether you are a U.S. or Non-U.S. resident.
Low Filing Fees
The Wyoming LLC requires a $100 filing fee for the Wyoming Secretary of State. The price is $102 when we file online. There is a $2 convenience fee.
No State Income Taxes.
Wyoming does not have any state corporate or personal income taxes (or franchise taxes). A Wyoming LLC taxed as a C corporation, for example, would not pay state corporate income taxes in Wyoming but would pay federal taxes.
C corporations pay a 21% flat tax.
If you are a U.S. resident and have physical nexus in another state, and foreign qualification is required, you would pay state corporate income tax to that state for any profits that are apportioned to that state.
Wyoming single-member LLC disregarded
A Wyoming single-member LLC disregarded where the owner is an individual. The profits would flow to the individual in their home state, and taxes would be paid personally, at the state and federal levels. If the owner is a foreign individual or legal entity, other factors come into play, including tax treaties, and if the LLC engaged in a U.S. trade or business.
Annual report requires by Wyoming
Wyoming does require an annual report to be filed, but the fee for most entities will be only $50. The fee will increase if you have assets in Wyoming that are more than $250K in value. This is usually the case because most entrepreneurs don’t have any valuable assets in Wyoming. The assets are usually outside Wyoming or the U.S.
Effective July 1, this may not impact most of you, but this is a fast-growing product segment worth noting the recent changes in 2020. Wyoming has newly begun taxing vapor products.
H.B. 73, signed into law on March 10, 2020, levies a tax on Wyoming businesses that manufacture, import, or sell vapor products. The tax is levied at 15 percent of the wholesale price.
A bill that would impose a corporate income tax on companies with more than 100 shareholders has been filed for the upcoming 2020 session of the Wyoming Legislature. You can read House Bill 64 here. The bill would impose a 7 percent tax on eligible companies in the state. This bill, similar to bills in many states, has been stalled due to COVID. Even if this did pass, most of you do not have more than 100 shareholders, which would not apply.
Wyoming has a 4% state sales tax rate with a local rate that ranges from 0-2%, for a total range of 4-6%.
Before the marketplace law in Wyoming was enacted in July of 2019, if you formed a Wyoming LLC, that would create physical nexus, and a sales tax registration was required to file sales tax returns. The LLC would collect and remit sales tax on sales to Wyoming residents.
Do Amazon Sellers that form a Wyoming LLC need to register for a sales tax permit in Wyoming?
After marketplace nexus, Wyoming considers Amazon, the marketplace facilitator, the vendor, and vendors that register for the sales tax permit. As the Amazon seller, you, even with a Wyoming LLC, are NOT considered a vendor and, therefore, are NOT required to register for a sales tax permit.
The exemption is if your Wyoming LLC sells a product subject to sales tax on a non-marketplace, such as your website or Shopify. Once you cross the economic thresholds of $100K in sales or 200 transactions (after January 1, 2019), the LLC will need to collect and remit sales tax on those sales, and registration is required.
Marketplace nexus also came into play after the 2018 U.S. Supreme Court case by many states, who decided that it makes more sense to have the marketplace facilitator (i.e., Amazon, eBay, Etsy, Walmart) collect and remit the sales tax on behalf of sellers.
Wyoming passed marketplace nexus in July of 2019. If you were an Amazon seller after July 2019, Amazon collects and remits sales tax on your behalf, and sales tax registration is NOT required.
The Wyoming Department of Revenue has summarized the sales tax situation for Amazon sellers by saying:
“If you are selling on Amazon, you will not qualify for an exemption certificate in Wyoming since Amazon will be the vendor. You don’t even meet a vendor’s definition, so you would not qualify for the exemption. You do not need to register for sales tax since Amazon is the one collecting the tax.”
The exception for Amazon sellers. If you are selling on Amazon and your website or a Shopify store and cross economic nexus with either $100K or 200 transactions, registration for sales tax is required.
Go to this link to learn more about our sister brand’s sales tax registration services, Sales Tax System. Suppose you are behind on sales tax in Wyoming or other states. In that case, we can help you determine your past liability and registration dates with our sales tax nexus analysis service.
In Wyoming, when you form an LLC, the manager or member’s name (depending upon how the LLC is managed) will NOT show up in the state’s records. This is an advantage of the privacy that Wyoming offers.
Privacy is an essential tool in asset protection. It is best described as the “icing on the cake” in terms of protecting your assets. It is not the starting point, but its privacy does bring in an extra layer of protection from the standpoint it may take longer and cost more money to determine the owner of a Wyoming LLC.
The mistake entrepreneurs make with privacy is thinking that their company somehow cannot be sued if their name does not show up in the LLC record. That is not accurate. A registered agent’s purpose is to accept service of process against a company and forward it to the contact on file at the registered agent’s office.
If someone is suing your company, it does not matter if they don’t know you are the “owner” or member. If your LLC is served with a lawsuit, you, as the owner, will still need to hire an attorney to represent your LLC and defend your company against the lawsuit.
If someone is searching for you specifically to find out what assets you may have in an LLC, then not having your name in state records is advantageous.
E-commerce sellers have product liability, and the company must be the first line of defense against a lawsuit.
Ideally, you have product liability insurance as the first line of defense, your legal entity as the second line. Amazon, for example, only requires product liability insurance once you surpass $1 million in gross sales, but they don’t enforce the policy.
Most Amazon sellers’ only line of defense is having a separate legal entity. That is why LLC formalities and protecting the LLC veil is so essential. Once someone or a company sues your LLC, they determine it was you or an “alter ego” (common with a single-member, disregarded LLC that is owned by one person), and they pierce the LLC veil. They are now going after your personal assets.
If you are a non-resident living in another country, you may conclude no one will come after you in your home country, as that may be difficult. But, you don’t want to have a massive judgment against you in the U.S., in the largest e-commerce market in the world.
There is a big difference between wanting privacy from other “pesky” e-commerce sellers attempting to determine what products you sell and your company or brand name.
Many Amazon sellers teach how to make money on Amazon, and they give examples, but won’t talk about their products because they don’t want their students to compete with them. This is the same experience if you go to an e-commerce event. Most sellers will not talk about their products, only about how long they have been selling and tips they have picked up at the event.
Update January 2021: New Law Requires Federal Registration and Ownership Disclosure for LLC and Corporations. The National Defense Authorization Act has become law. This law will disclosure ownership. At this time, the reporting mechanism has not been determined, but this may challenge the privacy that many sellers seek in Wyoming. Learn more here.
Suppose you sell a product online. In that case, you will have issues with other competitors or people that copy your product (even if protected properly) or report your product as violating Amazon’s terms of service (TOS) policies. Privacy will not protect you in this situation.
If you are a big brand name behind your training course and are the CEO of the corporation you formed in Wyoming, there is no benefit to not having your name in state records because you already shared with the world that you are the CEO.
Wyoming Offers No Privacy from the IRS
When filing U.S. tax returns, there is no privacy if you formed a single-member LLC, disregarded, owned by you. If the LLC had earned income, that would flow through to hedule C on your 1040 personal tax return. Your ownership will be disclosed on Schedule C, along with your SSN. Most are not concerned with privacy and the IRS, because it is not public data, as the Secretary of State.
If you form a Wyoming LLC taxed as a Corporation, perhaps you are looking to register on Walmart.
Walmart watches for U.S. taxpayers that fill out a W-9, vs. a W-8 for a foreign individual (W-8BEN) or foreign company (W-8BEN-E), requiring the application to be a U.S. taxpayer and complete a W-9. Once you file Schedule K of Form 1120 to the IRS, you’re required to disclose the beneficial owners of anyone who directly owns 20% or more of the company.
Is My LLC Name the Same as my Amazon Storefront and Amazon Brand Name?
No. Your LLC name could be your Amazon storefront name, and your product name could be a DBA name filed under the LLC. You will want to do a comprehensive trademark search for your LLC and product names (if different) and protect them accordingly.
Protecting The Entity Veil
When You Form A Separate Legal Entity, The #1 Advantage Is To Separate Your Personal And Business Assets. The Legal Entity You Form Will Provide A Barrier To Shield Your Personal Assets From Any Business Lawsuits.
If Your Business Is Sued, You May Lose All Your Business Assets; But Your Personal Assets Should Be Protected If Your Entity Is Properly Formed And Maintained.
Unfortunately, Should You Lose A Lawsuit And Not Have Insurance To Absorb The Initial Judgment (Which Is The Case For Most Who Form An LLC Or Corporation), Your Entity Veil Would Be Pierced, And The Lawsuit Would Attach To You, Personally. This Could Be Financially Devastating. Your Personal Finances Would Become Paralyzed. Let Us Explain.
If You Are Going To Apply For Any Personal Financing, A Car Loan, Refinance Your Home, Purchase A New Home, Being Asked, “Are You Currently Involved In Any Lawsuits, Or Do You Have Any Outstanding Judgments Against You” Will Immediately Cancel Your Financing Opportunity.
This Is What It Means To Be Financially Paralyzed, Which Is The Main Reason Why You Should Form A Separate Legal Entity Instead Of Operating Your Business As A Sole Proprietorship.
The Ability To Protect Your Entity Veil Is Essential, Especially If The Owners Include Partners Or Another Company.
Pierced Entity Veil
It’s essential to do things properly when you incorporate. If the corporation is sued and there aren’t enough assets or insurance, the plaintiff may decide to go through the corporation veil, after you, personally.
This is called “piercing the corporate veil,” and the consequences to you and your partners can be devastating. This also means that it was proven that you were simply the “Alter Ego” to the corporation or LLC, which means one in the same.
You are essentially a sole proprietorship again, financially paralyzed, with a lawsuit against you, personally!
How do you keep this from happening? Your new corporate entity MUST:
Follow corporate formalities, keeping recorded minutes and resolutions;
Have proper capitalization, which is the amount of money you put into the corporation to get it started;
NOT commingle funds with your personal account. Under no circumstances can you use corporate money to pay for your personal expenses.
Entrepreneurs don’t understand that when you form an LLC or Corporation, you have liability protection on day 1 of your formation. Still, to maintain that level of protection, you must operate your entity as a separate legal entity, where most people fail.
Corporate Veil Cases
The Wyoming statutes, in regards to piercing the entity veil, are very clear. They do protect the LLC veil. The Wyoming entity veil is still protected, even when it comes to lack of corporate formalities. Nevada still has a slight edge, as minimal capitalization is not a concern. Wyo. Stat. § 17-29-304
The sole member of a limited liability company (LLC) was held liable for the LLC’s contractual obligations because piercing the LLC’s veil was appropriate under this section; the court looked to undercapitalization and the intermingling of business and personal finances. Even though there was no classic fraud, the decision to pierce the veil and hold the member responsible for a debt for services which benefitted it was not erroneous. GreenHunter Energy, Inc. v. W. Ecosystems Tech., Inc., 2014 WY 144, 337 P.3d 454, 2014 Wyo. LEXIS 165 (Wyo. 2014).
The veil of a limited liability company may be pierced under exceptional circumstances when: (1) the limited liability company is not only owned, influenced, and governed by its members, but the required separateness has ceased to exist due to misuse of the limited liability company; and (2) the facts are such that adherence to the fiction of its separate existence would, under the particular circumstances, lead to injustice, fundamental unfairness, or inequity.
This test is fact-driven and flexible. It focuses on whether the limited liability company has been operated as a separate entity, as contemplated by the statute, or whether the member has instead misused the entity in an inequitable manner to injure the plaintiff. GreenHunter Energy, Inc. v. W. Ecosystems Tech., Inc., 2014 WY 144, 337 P.3d 454, 2014 Wyo. LEXIS 165 (Wyo. 2014).
An LLC is a distinctly different business entity from an S-Corporation or a C-Corporation. Like the formation of an LLC, the act of incorporation creates a separate legal entity protected by limited liability.
To keep this protection intact, the S- or C-corporation must operate as a separate entity. This means the corporation must do three things properly: follow corporate formalities, have proper capitalization, and, under no circumstances, may it commingle corporate funds with personal accounts.
If these three procedures are not followed, and the corporation is sued, the suing party may attempt to go through the corporation and seize personal assets. This is called “piercing the corporate veil.”
You may have heard that one benefit of forming an LLC is that it’s not required to maintain formalities, as you would in a corporation, to preserve liability protection. While this is somewhat true, it is changing.
In our research from the early 2000s, we discovered court cases involving piercing the LLC veil. In these cases, the judge looked to corporate cases for guidance and precedent, particularly concerning formalities (i.e., minutes, resolutions, etc.) Accordingly, the use of the term “piercing the corporate veil” has evolved to “piercing the entity veil” or “piercing the LLC veil.”
To protect you from this vulnerability, we maintain formalities for LLCs as well as for corporations. Our LLC record books have more than 50 pages of resolutions to protect our LLC clients. (We’re one of the few companies in the U.S. to do so for our LLC clients.)
Even though Wyoming and Nevada do not allow piercing due to a lack of formalities, we do not recommend ignoring them. In the end, with litigation, you don’t want a judge to rule against you, and avoiding formalities is one they may not appreciate.
Wyoming LLC Formalities
The Wyoming 2016 amendments. —The first 2016 amendment, by ch. 54 § 1, added (c) through (d)(iv).
The second 2016 amendment, by ch. 54 § 2, repealed former (b), which read: “The failure of a limited liability company to observe any particular formalities relating to the exercise of its powers or management of its activities is not a ground for imposing liability on the members or managers for the debts, obligations or other liabilities of the company.”
Laws, 2016, ch. 54 § 3, makes the act effective immediately upon completing all acts necessary for a bill to become law, as provided by art. 4, § 8 of the Wyo. Const. Approved March 4, 2016.
In Wyoming, not following LLC formalities are not grounds for piercing. This was amended in 2016. This is similar to Nevada.
The Wyoming Charging Order for LLCs
The benefit of forming a separate legal entity is that you will separate your business and personal liabilities. If you operate a business in your name as a sole proprietorship, you will have unlimited personal liability and could be personally sued for business or personal reasons.
If you form a corporation and now the corporation is sued, you will be protected as the shareholder. Unless you don’t operate the corporation properly, that leads to “piercing of the entity veil,” which means someone suing the corporation may come after you. That is, of course, a big problem. This comes into play if you commingle funds (taking money from your business account for personal items), don’t do any corporate formalities, and have low capitalization (under $100 or less).
Most people do not consider what will happen if you are sued personally for something unrelated to the operating entity.
If that happened, you could lose control of your company (if over 51% with voting rights, you would lose complete control) and all the company assets.
We saw a business owner lose a $3-million computer business this way.
He owned a computer business in California that was owned by a C corporation. The stock was owned by a living trust that protected assets from estate planning, not from liability. The owner’s 17-year-old son was involved in a severe car accident and was drinking and driving. Unfortunately, the person that was hit by the 17-year-old became a quadriplegic—a tragic situation for the 17-year-old.
The family was sued for $4-million personally. The personal insurance covered $1-million, and the family was on the hook for $3-million more.
Their biggest asset was the stock in his company, which was taken in the lawsuit. The entire $3-million business was gone, virtually overnight, from a personal lawsuit unrelated to the operating business.
If the entity had been an LLC, it would have been a much different story.
There is a legal remedy called the “Charging Order.” A charging order is an order by a court of proper jurisdiction, which places a charge in the amount owed against a judgment debtor’s property.
While the charging order does not usually provide immediate relief to the creditor, it may safeguard the asset’s value in the future.
The charging order generally prevents the creditor from foreclosing upon the ownership interest in the L.P. or LLC and forcing the sale of the entity’s interest or assets to satisfy the judgment.
The purpose and theory behind the charging order limitation are to protect innocent partners (in the case of an L.P.) or members (in the case of an LLC) from being forced to inherit potentially hostile parties as partners/members in a partnership-type arrangement as the result of creditor foreclosure or forced sale.
Such a consequence would likely have a severe and significant adverse economic impact on innocent partners/members.
The charging order remedy protects the value of the creditor’s interest while also protecting the innocent partner/member. The creditor becomes an “assignee” of any income that the debtor would derive from the ownership interest.
As a result, any amounts that would normally be paid to the debtor/owner, whether as distribution of profit or by virtue of the unforced, market-value sale of the entity ownership interest – which could include the exercise of internal partnership/LLC agreement provisions allowing existing innocent partner/members to exercise buy-out options to divest the interest of debtor/owner.
Three Levels of a Charging Order
The charging order laws generally fall into three categories regarding their charging order protection law’s strength.
In states such as Arizona, Nevada, Wyoming, and Texas, with the strongest charging order laws, a charging order against the LLC owner’s interest is the sole remedy for a creditor seeking to attach the LLC interest to satisfy a judgment. In these states, ALL a creditor would get with a charging order is a right to receive any distributions made to the debtor/owner IF the LLC makes a distribution. The creditor would not get any management, ownership, or voting rights with that charging order.
These states allow the creditor also to take the next step and foreclose on the charging order. Still, those states are also clear that getting a charging order and foreclosure are the exclusive remedies for a creditor seeking to satisfy a judgment against a debtor’s interest in an LLC. These states include California, Illinois, Hawaii, and Illinois.
Finally, states like Colorado, Indiana, Massachusetts, New York, and Missouri do not expressly limit a creditor’s rights to the charging order or foreclosure. The jury is out on whether a creditor in these states could seek additional remedies, such as forcing the LLC’s dissolution.
Single-Member LLC Charging Order Protection
Now, if you form a Wyoming LLC and foreign register in another state, the charging order may not hold up in that other state for a corporation. If an LLC, that would not be the case.
Like California and Delaware, some states allow a creditor to foreclose on the membership interest if they do not appear to receive any distributions!
That means after receiving the charging order. Suppose no money is paid or distributed to the creditors. In that case, the creditors can go back to the court, after some time, and ask to foreclose on the membership interest, which means they can get control of the ownership, which may give them control of the company with all the assets (if 51% or more).
There are a couple of states that do not have the charging order protection for LLCs. Those include Nebraska and Pennsylvania. Even those states do not have this protection because LLC acts contain a rule that members cannot transfer their voting and other management rights without the other members’ consent. This provides a specific layer of protection.
The big question that does come into play is will a single-member LLC have the charging order protection just like a two-member LLC?
Now, if you form a Wyoming LLC and foreign register in another state, the charging order may not hold up in that other state for a corporation. If an LLC, that would not be the case.
The charging order originally came from limited partnerships. It was designed so if one partner were sued for something unrelated to the operating business, it would not negatively affect the other partners – meaning if one partner were sued in a limited partnership, that would not bring down the entire business or create a new partner, the creditor.
After LLCs were created (in 1977) and became more popular in the late ’90s, no one ever seemed to address whether or not the charging order protection would apply to a single-member LLC.
After all, there is only one member, and you are not negatively affecting another member. The first case (“Albright”) came up in 2003, in Colorado, where a lady owned a single-member LLC that owned a rental property.
She filed personal bankruptcy, and the judge ignored the charging order, removed the rental out of the LLC, and put it into personal bankruptcy.
That was the first case where the charging order was ignored. Since there was no partner to affect negatively, the judge said he would take the property into bankruptcy court (meaning the LLC ownership that held the rental property). The other case was in Florida, in 2010, the Olmstead v. Federal Trade Commission case. Again the charging order was ignored on a single-member LLC.
Which States does Single-Members LLC Provide the Charging Order Protection?
The states with a single-member LLC charging order protection include Alaska, Delaware, Nevada, South Dakota, and Wyoming. In the other states, you may want to consider an LLC with two members.
E-Commerce Sellers Completing a Tax Interview with Your New Wyoming LLC
When you form a Wyoming LLC, make sure you know how to complete the tax interview on the marketplace where you plan to sell, or your account will NOT be activated. We provide these steps when you register and have tips directly from Amazon, for example, so you don’t have to figure out later what TOS areas you violated or what is POA (appeal) to Amazon.
Our team is familiar with most platforms and sales tax compliance that makes NCP and our sister brand, Sales Tax System, the #1 resource for serious e-commerce sellers looking to build and protect their profits in the U.S.