In 1977, the Wyoming legislature was the first in the country to permit individuals to create limited liability companies, or LLCs. An LLC combines the limited liability protections of a corporation with the pass-through federal taxation and flexibility of a partnership. Because of its status as the first state permitting the creation of LLCs, as well as the generous economic incentives provided by the state government, Wyoming is one of the major jurisdictions where individuals choose to create LLCs.
Limited Liability Protections
The major benefit to forming a Wyoming LLC is the protection of limited liability. If a general partnership were to incur debts and not have the assets to satisfy those debts, the debtors of a general partnership can hold the individual partners personally liable for any deficiency. The debtors of an LLC, however, cannot hold the individual members of an LLC personally liable for LLC debts in most instances. A person who invests in a Wyoming LLC, unlike a general partnership, does not face a significant risk of losing assets other than those invested in the LLC.
Federal Taxation Status
The other major benefit to forming a Wyoming LLC is the ability to elect federal tax status. The IRS taxes the profits of a corporation twice, once at the entity level and again on the corporation owner’s tax returns. However, the IRS allows LLC owners the option of electing to be taxed as a corporation, partnership or sole proprietorship. If taxed as either a partnership or sole proprietorship, LLC profits are not taxed at the entity level.
A Wyoming LLC allows individuals organizing an LLC to determine how they will run the LLC. When filing an articles of organization, an LLC organizer must disclose whether the day-to-day management of an LLC will be conducted by members or managers. LLC members are individuals with an ownership stake in the LLC, while LLC managers are employees without an ownership stake. A Wyoming LLC is flexible enough to accommodate single-owner businesses and multiple-owner businesses managed by employees.
Wyoming LLC Incentives
The state government provides a number of benefits to organizing as a Wyoming LLC. Wyoming does not assess any corporate state income tax or LLC franchise tax, and assesses an annual fee of only $50, as of December 2010, to file an annual report. Wyoming also does not assess any personal state income tax or inventory tax. Additionally, Wyoming’s sales tax is only 4 percent, with a 2 percent optional county sales tax, and also offers a sales and use tax exception for any manufacturing equipment. Wyoming’s tax burden is second lowest in the nation, according to the Wyoming Business Council.