It’s well known that Delaware is pretty much the default location in the U.S. to file incorporation papers. But the legal database OpenCorporates has noticed a dramatic increase in corporates in another state with hardly any people: Wyoming. In fact, measured by incorporations per 1,000 people, Wyoming now is in the lead with 378 per 1,000 adults as of 2023 versus a few dozen less per 1,000 for Delaware. Everywhere else, the rate averages out to just 36 incorporations per 1,000, OpenCorporates says. What’s more, the number of incorporations in Wyoming grew 42% last year alone.
What’s going on? OpenCorporates suggests it’s because of the increasing popularity of the Limited Liability Company (LLC). The concept was born in Wyoming in 1977. In 1988, the Internal Revenue Service said in effect that LLCs can choose to be taxed as a corporation or as a partnership. By the mid-1990s, 40 states had enacted LLC laws.
“The result was a legal entity form that provided owners with the best of both worlds: it gave them the benefits of a partnership for taxation purposes (broadly, the profits would belong to the members, and declared on their tax returns, rather than the entity being taxed); at the same time,” OpenCorporates said in a recent blog. “it was a separate legal entity, and one with limited liability, so that the members were not personally liable for the losses of the entity, just like a corporation. It also, as a ‘partnership,’ meant that it was treated in many states more like a contractual agreement, with limited governance requirements or transparency for those doing business with it.
“In the next two decades, powered by this best-of-both-worlds legal treatment, the LLC became popular not just in Wyoming but across the country, and not just for small businesses but for a wide range of purposes,” OpenCorporates continued. “For example, the main division of Alphabet Inc., the holding company of Google, is not Google Corp, but Google LLC. But in the past 10 years, this has exploded, with millions of incorporations a year, and LLCs significantly outnumbering any other legal form.”
As to why Wyoming became a go-to place for LLC incorporations, OpenCorporates says there appear to be several reasons: No state income taxes, asset protection and limited liability, neither members nor managers are listed with the state, asset protection laws are strong, startup costs are lower, and the number of potential owners is unlimited.
