For international founders keen on setting up an LLC in the USA, there’s a big first question: Wyoming or Delaware?
Both spots offer perks for founders. Yet, the tiny differences could make a difference to your business, depending on what stage it is at.
In this article, we’ll guide you through the pros and cons of each spot, especially when non-resident founders go the LLC route.
Quick Point: Tax Rates Are the Same
Here’s a key point: If your LLC checks a few boxes, its tax rate in the US will be a straight 0%, regardless of its state of incorporation. For clarity, US taxes typically don’t touch non-resident LLCs if they:
1. Don’t employ people in the US
2. Don’t have physical premises in the US, and
3. Don’t stay over 90 days (sometimes more) in the US within a calendar year.
Slip up on these, and you might end up in the US tax web – and it’s not always cozy there. But, most online businesses such as ecommerce stores, service-based agencies, and small software companies easily meet the zero taxes criteria. For each of them, an LLC in either Wyoming or Delaware might just be the ticket for their venture.
Wyoming LLCs for Non-US Founders
Not widely known, but Wyoming was the pioneer of the LLC concept in the 1970s. The birthplace of the LLC took a while and set up entrepreneur-friendly rules to lure global business folks to register there.
Here’s the Wyoming LLC rundown:
1. Low bureaucracy. Wyoming doesn’t require LLC members to submit operating agreements or a roster of members for their Secretary of State. While many countries worldwide love paperwork, Wyoming prefers to keep it light. Just an annual report to let Wyoming know you’re still in business. This simplicity leads to the next perk – affordability.
2. Low administrative operating costs. Less red tape translates to fewer costs. The incorporation state fee is only $100. From year two, you’re only looking at a $60 annual report fee. That’s the main administrative cost unless there’s a change, like a new name or members. Some shifts have a tiny fee, while others, like swapping a registered agent, are free of charge. If you need to close the LLC, it costs only $60.
3. Zero Franchise Tax. Some states bill you for the ‘honor’ of setting up a business there, but not Wyoming. It may be important for you to save this money while getting your company up and running.
4. Solid Asset Protection. Your company’s assets stay separated from your personal assets. They are safe even if personal financial issues hit. And vice versa, your personal assets are safe from your business’s financial issues.
5. Identity Privacy for the LLC Members. Wyoming keeps LLC member names in secrecy. If curious folks are searching the records to find anything about you or the company, they’ll find only the registered agent’s name. Your name will be in the operating agreement and the registered agent’s records. It will be provided to authorities only upon a court order.
6. Funding Opportunities. Modern investment funds are digging LLCs, Wyoming ones included. However, some eager investors might require you to transfer your LLC to Delaware and convert it to a C-Corp if they jump on board.
7. Smooth C-Corp Transition. If you ever need to convert the LLC into C-Corp to receive investment, it costs a few hundred dollars and takes a couple of weeks.
Delaware LLCs for Non-US Founders
Delaware isn’t just a hangout for the Fortune 500 by accident. This business-cozy spot pulls in founders worldwide, and here’s why:
1. Low bureaucracy. Delaware, being entrepreneur-tailored, spares you from drowning in paperwork for the Secretary of State. All you need is to submit the annual report and pay your franchise tax return to keep the lights on.
2. Affordable to operate. The $90 incorporation fee is affordable, as well as the $25 to $125 for an annual report. Closing costs $204. Any changes in the company cost around $200 or more each time.
3. Franchise Tax. Here’s a Delaware curveball for non-residents. Even if you don’t owe any taxes in the US, Delaware wants its cut for letting you set up a business on their soil. That’s a neat $300 each year.
4. Asset protection. Just like Wyoming, Delaware ensures the LLC and its owner are distinct. This means your business assets are protected from personal financial claims, and your personal assets are safe from business financial problems.
5. LLC Members Privacy. Delaware provides the same LLC members’ privacy Wyoming does. No names in public records. No one could know that you are the LLC owner without a court order.
6. The Chancery Court. Delaware’s Court of Chancery is one of the main reasons why so many Fortune 500 companies choose this state to be their home. It is a court that’s all about business. And instead of a jury, business-savvy judges resolve disputes swiftly.
7. Easy C-Corp Conversion. A Delaware LLC can shape-shift into a C-Corp with ease. If international founders are eyeing US investments, investors often require them to morph into a Delaware C-Corp before the funds flow. You can start as an LLC for tax reasons and convert once you have secured an investment. The same applies to moving to another state.
Wyoming LLC or Delaware LLC: Decoding the Best Pick for Global Entrepreneurs
Both states have their unique set of perks for founders. The differences between the two might seem slight but could be important depending on what you want to do and what stage is your company at.
Depending on whether you’re spearheading a tech startup hoping for angel investment, steering an e-commerce venture, or freelancing as a consultant aiming for minimal overheads, these differences can greatly impact your decision.
Wyoming’s standout features are the low operational costs paired with robust asset safeguards. Opting for Wyoming over Delaware could save you several hundred bucks annually, largely due to the absence of a franchise tax. If you’re dipping your toes into international entrepreneurship with a tight budget, we advise you to consider Wyoming LLC.
On the other hand, Delaware offers its efficient dispute resolution via the Court of Chancery. That also makes it an investor magnet and if you want to get some funds, you may need to go there. This is where Delaware gains an edge over its Wyoming counterpart.
Here’s our advice: If securing funding is on your horizon, remember that starting off as a Wyoming LLC and transitioning to a Delaware LLC or C-Corp later is easy and doable. This way, you can maintain low ongoing costs for your LLC in the interim.
For those in e-commerce, freelancing, service-centric domains like marketing or consultancy, or software enterprises not eyeing immediate investments, Wyoming saves you $300 annually on franchise tax. It doesn’t seem like big money, but for some entrepreneurs could mean a lot in the beginning.
If you are eyeing angel investment or venture capital in the very near future, consider Delaware. In all other cases, Wyoming naturally stands out.
