International founders looking to incorporate an LLC in the United States will face one big question up front: Wyoming vs Delaware.
Both states provide similar benefits to founders. Still, the nuances can cost millions if your company grows into the seven-figure revenue range.
In this article, I’ll walk you through the pros and cons of each location before getting into some trends we’ve seen with non-resident founders utilizing the LLC structure.
Summary: Delaware LLC vs. Delaware C-Corp for Non-Citizens
|Features||Wyoming LLC||Delaware LLC|
|LLC members privacy||Strong||Strong|
|Specialized court||Not available||Available|
|Investors preference||Not common||Common|
Note: no tax rate difference
It is important to note that if you meet a few requirements, the tax rate for your LLC will be 0%, no matter where it is incorporated in the US. That’s why we will ignore the differences in tax rates between the two states. To remind you, non-resident LLCs generally don’t owe taxes in the US if they:
- Do not have employees or exclusive contractors in the US
- Do not have premises in the US, and
- Do not spend more than 90 days (in some cases more) in the US in a calendar year.
You’ll fall into the US tax net by failing to meet these requirements, and that’s rarely a nice place to be. A US LLC in Wyoming or Delaware can be ideal for your business in all other cases.
Wyoming LLC for Non-Resident Founders
Few people know that Wyoming invented the LLC in the 1970s. The state that invented the LLC needed some time and business-friendly policies to attract global entrepreneurs to register their businesses there.
Here is what you can expect from your Wyoming LLC:
Low bureaucracy. Wyoming does not require LLC members to submit operating agreements and a list of members to the Secretary of State. Many other states require submitting a lot of documents to authorities, but Wyoming is not one of them. An annual report filing is required, but it is simple and straightforward. It informs the State of Wyoming that your company is still operational. That’s all the paperwork you need to do and is the reason for the next benefit - low maintenance costs.
Low maintenance costs. Minimum bureaucracy means minimum maintenance costs for your Wyoming LLC. The incorporation filing fee costs $100. From the second year, you’ll owe the state only the annual report fee of only $60. That’s all the administrative fees you’ll need to pay unless you make some changes, such as a change of the name of the company, adding new members, etc. Such changes require paying a small one-time fee. Some changes, such as the change of registered agent, do not require paying fees. If things go wrong, dissolution of the LLC costs only $60.
Franchise tax. You’ll pay no franchise tax in Wyoming. Some states charge companies a franchise tax, which is a tax for having the privilege of incorporating a company in that state. Only a few states charge it, but Wyoming is not one of them.
Asset protection. Your company’s assets will remain untouched if you, as an individual, get into any trouble and creditors come after your assets. Likewise, your personal assets will remain untouched if a creditor comes after your LLC’s assets. Wyoming has very strong asset protection laws, unlike some other states.
LLC Members Privacy. The names of the Wyoming LLC members are not published in public records. If someone searches the records to find out who founded the LLC, they will find only the registered agent’s name. Registered agents must know the LLC members’ names, but the public never will.
Funding opportunities. Investment funds these days invest in LLCs, including Wyoming LLCs. However, some angel investors may require you to transfer your Wyoming LLC to Delaware and convert it to C-Corp should you need the investment.
Easy to convert to C-Corp. If you want to start an LLC to test the waters and convert to C-Corp and seek investments later on, a Wyoming LLC is a good way to start. It is easy to convert it to a C-Corp.
Easy to move it to another state. Just like changing the corporate structure, it is easy to move the LLC to another state and domesticate it there. It will require just a few hundred dollars and a few days, depending on where you want to transfer it.
I’ve written up a full guide to the pros and cons of Wyoming for foreign-owned LLCs here.
Delaware LLC for Non-Resident Founders
Delaware is the home of many Fortune 500 companies for a reason. It is a business-friendly jurisdiction that attracts foreign founders as well, due to the following reasons:
Low bureaucracy. Delaware is a business-friendly state that does not require submitting tons of documents to the Secretary of State. It doesn’t even require an annual report filing. However, you must file the franchise tax return to keep your company operational.
Franchise tax. This is the only downside to owning a Delaware LLC as a non-resident. Despite not owing any taxes in the US, the State of Delaware requires both residents and non-residents to pay an annual franchise tax for having the opportunity to register a company under this jurisdiction. It will cost you $300 flat per year.
Asset protection. Delaware offers similar asset protection to Wyoming. The LLC is a separate entity from the individual; therefore LLC’s assets are protected from personal creditors and vice versa.
LLC Members Privacy. Like in Wyoming, the names of Delaware LLC members are not published in public records. Only the registered agent’s name can be found there.
Court of Chancery. The Court of Chancery is unique to the State of Delaware and is one of the main reasons why so many big corporations are incorporated there. This court focuses exclusively on commercial disputes and business law. It doesn’t rely on a jury but on judges with a business background who can resolve issues fast and efficiently due to their great knowledge and understanding of business.
Easy to convert to C-Corp. A Delaware LLC can be easily converted into a Delaware C-Corp. Investors usually require international founders who raise investments in the US to convert into a Delaware C-Corp before getting the money in their accounts. That’s an easy process.
Easy to move it to Delaware. The process is simple and affordable if you move an LLC from another state to Delaware.
Wyoming LLC v. Delaware LLC: What is Best for International Founders
Both states offer a number of benefits to founders. The variations between them are small, but should not be ignored. They can make a lot of difference depending on whether you are a founder of a software company who seeks langel investment, an e-commerce store owner, or a freelance consultant who wants to keep the ongoing costs low and keep a greater margin in your pockets.
The most obvious benefit of the Wyoming LLC is the low costs of maintenance of the company and the strong asset protection. Choosing to incorporate a company in Wyoming over Delaware will save you a few hundred dollars a year, mostly due to the lack of franchise tax. If you are just starting out in global entrepreneurship and your budget is limited, this may be the best option for you.
Registering an LLC in Delaware, on the other hand, brings better and more efficient dispute resolution at the Court of Chancery. That leads to another benefit of Delaware LLC - all investors like it. If you are a startup founder and want to get it funded, some investors may ask you to relocate there. That’s where Delaware has benefits over Wyoming LLC.
If fundraising is on your roadmap, it is important to know that you can always start as a Wyoming LLC and switch it to Delaware LLC or a Delaware C-Corp when necessary. It takes only a few days and a few hundreds of dollars. In the meantime, you can keep the ongoing LLC costs low.
Summary of benefits between Wyoming and Delaware LLCs
Wyoming or Delaware LLC for non-citizens — the choice depends on what you want to do with your LLC.
A Wyoming LLC is a better fit for people in e-commerce, freelancers, service-based businesses like marketing agencies or consultants, or software companies that do not intend to raise investments soon.
Delaware may be a better option if you want to get investment from angel investors or funds. Although more and more investors would invest in a company no matter where it is founded, many investors will require you to domesticate your company in Delaware.
However, if it is still too early for investments and you want to keep your LLC maintenance costs low while experimenting with a product-market fit, you can register your company in Wyoming and transfer it to Delaware once you find investors. Transferring your Wyoming LLC to Delaware and transforming it into a C-Corp is easy, quick, and affordable. You can save on franchise tax and other costs until you find investors. Other than that, Delaware offers mostly prestige compared to Wyoming.
If you don’t seek investments in a startup, then the low costs of the Wyoming LLC would be the obvious choice.
Frequently Asked Questions
Can I form an LLC in Delaware if I don’t live there?
You can form a Delaware LLC from anywhere worldwide without ever traveling to Delaware or the United States. Delaware is a common state of choice for non-resident founders who have never set foot on US soil. Incorporating in the US is an easy and straightforward process that can be done entirely online, including opening a US business bank account, submitting annual reports, filing tax returns to the IRS, and so on.
Can a Wyoming LLC have a foreign address?
Wyoming LLC cannot have a foreign address. It must have a Wyoming address. When a non-citizen incorporates in Wyoming, Delaware, or anywhere in the US, they usually use the address of their registered agent service. However, you can use another address if you want.
Is Wyoming better than Delaware for non-resident LLCs?
Wyoming is better than Delaware for non-resident LLCs because of the lower costs of running the LLC. Moreover, Wyoming LLCs do not pay a franchise tax to the state. If lower running costs are your main differentiator, Wyoming is the obvious choice.
Why is it so common to file an LLC in Delaware?
Founders often incorporate in Delaware because of its good reputation. It is a business-friendly jurisdiction with mechanisms for efficient resolution of commercial disupites, low taxes, and low bureaucracy. That’s why many investors prefer to invest in Delaware corporations over companies incorporated elsewhere. However, a Wyoming LLC can provide the same benefits for lower costs for some entrepreneurs. If you don’t need to get funding soon, it may not be necessary to stick to Delaware.