Entrepreneurs looking to start a business in the U.S. must evaluate different options like the business structure, amount of capital, nature of operations, the associated licenses, and more. One such key decision is to decide the best state for an LLC, as this determines the subsequent state tax liabilities, privacy, legal structure, cost of incorporation, and operation. Two popular business-friendly states, especially for international entrepreneurs, are Wyoming and Delaware.
In this article, we will do a direct comparison of Wyoming vs. Delaware LLC to help you decide the right state for your business.
Why Wyoming and Delaware Are Top Choices for LLC Formation
For any entrepreneur who wants to form an LLC, two states stand out. They are Wyoming and Delaware. Both states have business-friendly policies to support any kind of business, and their state tax liabilities are low when compared to places like California. Moreover, these states have strong privacy laws and focus on asset protection as well. Delaware, in particular, has a business-friendly court system and is home to many Fortune 500 companies. Above everything, they have fewer rules to set up a business, reducing the time and effort required for forming an LLC in these states. Due to these fewer requirements and a strong business culture, many entrepreneurs prefer to set up their operations in these two states.
Key Benefits of Forming an LLC in Wyoming
As of 2023, Wyoming had 166,960 LLCs incorporated in the state. It has the highest per capita LLCs of 378.31 per 1,000 adults in the state. This surge is because of the many Wyoming LLC benefits. Some notable ones are as follows:
Privacy & Asset Protection
One of the biggest advantages in Wyoming is its privacy protection for LLCs. What this means is that Wyoming does not require the LLC members or their details to be disclosed publicly. More importantly, an LLC can be formed with just an American agent who can act as its representative, making it ideal for international entrepreneurs. Additionally, the state has strong asset protection laws, so creditors cannot seize assets easily. Single-member LLCs also have charging order protection by statute.
No State Income Tax
Another major reason for businesses to move to Wyoming is that the state has no corporate state tax. The state sales tax is also low at just 4%, making it economically viable for LLCs to conduct their operations here.
Lower Annual Fees
The annual fees are much lower in Wyoming when compared to Delaware or other states. These fees, often called the franchise tax, are paid by every business incorporated in Wyoming. This tax is a minimum of $60 per year. The actual value is $0.0002 per dollar of the assets located in Wyoming, provided it is more than $60. Otherwise, the business pays just $60. It is due on the first of the month in which the LLC was incorporated. In comparison, the minimum tax in Delaware is $175.
Flexible Business Structure
Wyoming supports many business structures, including multi-member LLC and single-member LLC. With this flexibility, single owners can start companies and still have protection from creditors as their personal assets cannot be used to offset business losses. In contrast, states like California treat single-member LLC as a sole proprietorship, which means there is no limit on your liability.
Due to these Wyoming LLC benefits, many entrepreneurs prefer to set up their business in this state.
Key Benefits of Forming an LLC in Delaware
Like Wyoming, Delaware also offers many tax concessions and ease of doing business for LLCs. Here are some noteworthy Delaware LLC advantages:
Strong Legal System
Delaware offers strong legal protection for LLCs operating in the state. In particular, its legal framework safeguards the personal assets of business owners from business liabilities.
Preferred by Investors
Delaware is home to many Fortune 500 companies, and this opens business opportunities for LLCs and small businesses. Its stable environment and a robust ecosystem attract more investors like venture capitalists and private equity firms.
Tax Flexibility
Another key advantage is the state’s low tax liability. It does not tax out-of-state income for LLC owners who don’t reside in Delaware. Its tax structure is also simple and easy to implement for most business owners. The only tax it charges is the franchise tax, which starts at $175 per year. There’s also flexibility in computing this tax in two ways, so you can leverage the lower cost option.
Pro-Business Legal Framework
Delaware’s corporate laws are well-established to provide a predictable and uniform legal environment. The highlight is its Court of Chancery, which handles business disputes without requiring long trials and a jury panel.
The above advantages make Delaware a preferred choice for local and international entrepreneurs who want to set up a hassle-free business.
Wyoming vs. Delaware LLC: A Cost Comparison
From the above discussion, it’s clear that both states have a favorable business environment for entrepreneurs. Ultimately, the choice can come down to the cost of setup and operations. Below is a brief Wyoming vs. Delaware LLC formation cost comparison:
Formation Costs
- Wyoming – The initial filing fee is $100.
- Delaware – The formation fee starts at $90 and can increase if you want expedited services.
Annual Fees
- Wyoming – The annual report or franchise tax is $60 or $0.002 of every million, whichever is higher.
- Delaware – The franchise tax starts at $175 and could go higher depending on the option you choose for computing it. There are two calculation methods in Delaware: the Authorized Shares Method and the Assumed Par Value Method. Depending on the chosen method, the final fee can vary.
Note that there is no state income tax in either of these states.
Registered Agent Fees
Both states mandate that a business must have an agent who is registered and licensed in that respective state. The costs of this registered agent depend on the company/agent you choose, and can range anywhere from $50 to $300 per year, depending on the provider.
Hidden Costs
Depending on your business, you may need additional licenses and permits to operate in Wyoming, and this can add to your costs. Similarly, business insurance is another hidden cost. While the state does not mandate insurance for any business, it is an accepted practice to get insurance. The premiums can vary depending on the nature of your business. Lastly, there’s something called a nominee services fee. If you want to remain anonymous, you must nominate someone to act on your behalf, and this will require you to spend extra.
In Delaware, the permits and licenses can cost extra, too. If you want expedited services, those will add to your costs as well. Other professional services, like legal and accounting, will increase your setup costs.
Overall, the above cost comparison shows that Wyoming can be slightly cheaper than Delaware, but Delaware offers more business options and a thriving ecosystem.
Best State for International Entrepreneurs
International entrepreneurs have many unique requirements when it comes to starting a business. Firstly, they may not have all the required documents, may not be physically present, or may have other restrictions. To overcome these challenges and to also help them set up business operations, Wyoming and Delaware support.
Ease of Foreign Ownership
Both states welcome foreign ownership. There are no residency requirements for U.S. citizens. Wyoming also offers strong privacy protection as the names of the owners need not be made public. This provision is helpful for international entrepreneurs looking for anonymity. Similarly, Delaware also allows foreigners to be officers or directors in any Delaware corporation.
Banking & Taxation
There is no state income tax in either Wyoming or Delaware. Also, foreign-sourced income is not taxed in either state. A key difference between the two states is the banking option. Wyoming allows owners to open U.S. bank accounts remotely and operate them without any restriction. They can also use payment gateways like Stripe to access their funds. However, note that this option for remote account opening depends on the bank’s internal policies, with some banks requiring an SSN or an in-person verification.
Delaware, on the other hand, does not explicitly allow remote banking, but business owners can use Electronic Money Institutions (EMIs) instead of traditional U.S. banks to transact. Moreover, Delaware does not require a company to have a state bank account.
Residency Requirements
There are no residency requirements in either state, making them ideal for international entrepreneurs. However, they must have a registered agent in the state to carry out operations on their behalf.
Thus, these are the key Wyoming vs. Delaware LLC differences.
Which State is Best for Your LLC?
Now that we have discussed the two states in depth, let’s come to the important question – which is the best state for LLC?
Overall, both states offer a favorable business environment for all kinds of businesses. If you have to choose between the two, register in Wyoming if you’re looking for strong privacy, anonymity, liability protection, and flexible banking options. On the other hand, Delaware’s thriving business environment and its strong legal framework can be an advantage, though it can be slightly more expensive than Wyoming to set up and operate a business.
Depending on your business structure, funding needs, and other specific requirements, decide whether you want to register in Wyoming or Delaware. If you are unsure and need more help to evaluate and decide the best state for LLC, schedule a free consultation with Manay CPA. Its experts have helped thousands of international entrepreneurs to set up businesses in the United States.
