Delaware vs. Wyoming LLCs: Where Should You Incorporate?

It’s great that you’ve decided to form an LLC. Now it’s time to decide which state to incorporate your new company in.

While you can register your business in any US state, Delaware and Wyoming are among the most popular and advantageous states for incorporation. Both states provide business-friendly taxation, lower fees, and robust legal protection.

That said, there are also important differences in taxes, regulations, and other elements of business operations in these two states. In this article, we'll explain the pros and cons of Wyoming vs. Delaware for LLCs and help you decide which state is right for your business.

What is an LLC?

An LLC (limited liability company) is a simple business structure that acts as a separate entity from the individual member or members.

The name ‘limited liability company’ comes from the liability protections associated with this type of business. Since LLCs are distinct from their members, the members cannot be held personally liable for the debts, legal judgments, or other obligations of the business.

Let’s get this with an example.

Suppose you own a small business called Creative Designs LLC. One day, a client trips and falls inside her office, breaking their arm. The client sues Creative Designs LLC for $50,000 in medical bills and damages.

Since you’ve set up your business as an LLC:

• The lawsuit is filed against the LLC, not against you personally.
• If the court finds the LLC liable, the LLC’s assets (business bank accounts, equipment, etc.) can be used to pay the damages.
• Your personal assets, like your home, personal savings, or car are protected and cannot be used to pay the judgment.

The one thing I learned in Commerce very early is to ‘Treat yourself and your company as separate entities.’

But without an LLC, there is no clear line between you and your company.

If someone has a claim against you, they'll sue you on a personal level rather than suing the business. While lawsuits are never fun, it's much better to deal with a lawsuit against your business than one against you as an individual.

If you're thinking of incorporating in the US, the main alternative to an LLC is a C-Corp. Unlike LLCs, C-Corps have to pay corporate taxes on profits, and they're also subject to additional regulatory requirements. However, C-Corps can issue equity, which makes them ideal for founders who want to get funding from outside investors.

Here’s a quick distinction between LLCs and C-Corps:

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It would be impossible to cover every difference between these two business structures in this article, but it's important to understand the pros and cons of both before moving forward with incorporation. If you're unsure, take our LLC vs. C-Corp quiz for a personalized recommendation.

Benefits of Incorporating an LLC in Wyoming

Many LLCs incorporate in Wyoming due to its lower administrative and annual operating costs. We generally recommend Wyoming as a good default for founders who want to incorporate an LLC.

Wyoming has no state income tax, corporate tax, or franchise taxes, which make it attractive for companies looking to minimize their tax obligations. 

Furthermore, Wyoming offers a simplified LLC registration process with minimal paperwork. You don't need to create an operating agreement, although you may still want one for your own purposes. Maintaining an LLC in Wyoming is also more straightforward, with minimal additional documents to file with the state. 

Finally, Wyoming provides unparalleled asset protection and privacy. On top of the liability protections afforded to all LLCs, Wyoming also allows LLCs to incorporate without disclosing ownership details or the identities of their members. 

Best of all, you don't have to be a Wyoming resident — or even a US resident — to incorporate there. Anyone can incorporate a Wyoming LLC as long as they have a business address, a registered agent, and other key requirements. Click here to start your Wyoming incorporation now.

Benefits of Incorporating an LLC in Delaware

Delaware is best known as a haven for major corporations and C-Corps in general. In fact, more than two-thirds of all Fortune 500 companies are incorporated in Delaware. However, Delaware also offers some advantages for LLCs.

Delaware features a unique court system called the Court of Chancery, which focuses on business law and corporate conflicts. Court of Chancery judges have a business background and can resolve business matters more efficiently without a jury. 

Like Wyoming, Delaware also offers strong asset protection and privacy protection for LLCs. If a member of your LLC is involved in a lawsuit, the Delaware Asset Protection Trust prevents creditors from seizing any part of your LLC’s assets. Additionally, Delaware is one of the few states that excludes the names of members and managers when filing. Only the LLC and the name and address of the registered agent are publicly available.

Fees, Taxes, and Filing Requirements

Bottom Line

As mentioned above, the main advantage of Delaware is its unparalleled service for corporations. If there's a chance that you'll want to convert your LLC to a C-Corp later on, it might be a good idea to start in Delaware in order to give yourself this flexibility in the future.

If you aren't planning on raising venture capital, a Wyoming LLC is a good choice for non-residents and single owners who want to operate smaller online or e-commerce businesses. Wyoming offers lower startup and administrative fees than Delaware and requires less paperwork to manage.

While this article doesn't cover all the nuances and legalities between incorporating an LLC in Delaware vs. Wyoming, we hope it's instructive in understanding the key differences in helping you decide which state is right for your business. If you're ready to move forward, click below to start your incorporation with us today.

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