As a real estate entrepreneur building your empire, you are working to see your assets grow and flourish. However, as the “great philosopher,” Christopher Wallace once said, “Mo’ Money, Mo’ Problems,” and that could not be more true. As your empire grows, the likelihood of liability grows as well. That is why it is important to have asset protection in mind as you expand. A Wyoming LLC is a tool that is often used as part of an effective asset protection plan.
Some big benefits to the Wyoming LLC include anonymity, a strong charging order, and inexpensive maintenance.
Unlike many other states, Wyoming LLCs offer anonymity, making it difficult for people to find out who the owner of the entity is. Wyoming does not require the disclosure of the owners, officers, or managers of the LLC when filing, and thus, that information generally does not appear in public and free databases.
With less public information available, it becomes more difficult for individuals to find out who the actual owner of the entity is. This lack of information also means that potential litigators may not know who to sue and may not become aware that certain assets are available for seizure in the event of a judgment. The difficulty in finding the owners of the LLC can also often decrease the likelihood of frivolous lawsuits.
Wyoming is a great place to form an LLC because of its charging order statute. With a charging order, if a member’s interest in the entity is to be used to satisfy a judgment against that member, the judgment creditor is only entitled to distributions, and that is only if distributions are made. This means that the entity’s other members will not be stuck with a new “partner” that has voting rights, control, and/or management of the business. Instead, the charging order says that the creditor is only entitled to profit distributions when they are made — and they cannot force those distributions.
Wyoming has relatively low LLC renewal fees and it typically only levies taxes based on assets that the entity holds within the state of Wyoming. Further, Wyoming makes the process of creating an entity quick and straightforward. You can probably create a Wyoming LLC and receive the conformed articles of organization in the time that it takes you to read this article. This contrasts with many states that often require a few days, weeks, and sometimes even months before confirming the creation of the new entity.
Part of the reason for Wyoming’s speed in this area is that Wyoming’s LLC creation process — including the application and confirmation — is done completely online. This contrasts with other states, such as Delaware, that still incorporate traditional snail mail as part of their entity creation process.
While Wyoming has many great characteristics that make it a great place to form an LLC, registered agents and jurisdiction are some important considerations to keep in mind.
Every entity must have a physical address in the state of formation. The physical address cannot be a P.O. box or mailing service. Every business entity needs a registered agent on file so that if the entity gets sued, there is a person and address that accepts service of process on behalf of the entity. If you do not live in nor have a physical address in Wyoming, you will likely need to pay a company to serve as the registered agent. There are numerous companies that serve as registered agents with pricing starting as low as $50 per year and going as high as hundreds of dollars per year. Thus, the registered agent service and cost are things to keep in mind when creating a Wyoming LLC.
As far as jurisdiction, if the entity is formed in Wyoming, Wyoming has personal jurisdiction over the entity, meaning that the entity can be compelled to appear before the courts of Wyoming. Thus, if your entity is sued and you as the owner or manager do not live in Wyoming, you can nonetheless be compelled to defend a lawsuit on behalf of the entity in Wyoming instead of dealing with the legal issue in your home state.
If this jurisdictional issue concerns you, one strategy is to use a Wyoming LLC simply as a holding company. In most cases, a holding company simply holds assets but does not conduct any business or do anything that could incur liability. By having a Wyoming LLC serve as a holding company, you can dramatically decrease the likelihood of defending the LLC against a lawsuit in Wyoming because the LLC likely is not partaking in many or any actions that would subject it to litigation.
The Wyoming LLC is an amazing asset protection tool for real estate entrepreneurs. It offers anonymity that keeps your personal information private. It has charging orders that make it difficult for creditors to force distributions or have full ownership power if the entity’s interest is used to satisfy a judgment. It requires minimal administrative work, costs, and maintenance in comparison to other states. All these benefits make Wyoming a great place to form an entity. By taking advantage of the benefits of the Wyoming LLC, you can protect your assets and secure your real estate empire.
As always, every situation is unique. The law is very nuanced. For the reasons above, Wyoming LLCs often serve as the ultimate asset protection tool for many. However, it is important that you work with an attorney, tax professional, and other financial professionals to evaluate your unique situation and advise you accordingly.
Let me tell you a little bit about me. I am the founding attorney at Polymath Legal PC. Polymath Legal PC helps real estate investors lawfully raise capital to generate passive income while creating generational wealth. I have owned and operated Polymath Legal since 2010. During that time, I have assisted clients with over $2B worth of real estate transactions, syndications, and funds.
Education-wise, I have my law degree (J.D.) but also received an L.L.M. in Taxation & Financial Services. As a lifelong learner, I also have multiple executive certificates in the areas of business, real estate, and development. I am licensed to practice law in California and Washington. In addition to my law practice, I am also a tenured professor of law.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.