Close Limited Liability Companies
The Close LLC is designed with small businesses in mind. The Wyoming LLC Act allows close companies to sidestep onerous formalities while otherwise keeping the benefits of a Wyoming LLC. Generally, the designation is for single-member LLCs and for when members are close to one another, i.e. family and close friends.
The unique relationship between members results in the Close LLC being allowed to operate with fewer bureaucratic hurdles - somewhat akin to a partnership. Close companies may also be used to enhance asset protection and for estate planning purposes. Those benefits are discussed further below. Note, this entity is sometimes referred to online as a "Closed LLC". However, there is no "Closed" designation - only "Close".
Follow this link to learn more about Wyoming LLCs in general.
- Simplified Governance: The company is not required to hold an annual meeting or send formal notices of large decisions.
- Membership Limits: Close companies are limited to 35 members or owners. There are no residency requirements.
- Special Actions: The change for close corporations and LLCs took effect in 1990. Accordingly, if you formed a Wyoming LLC before 1990 and you want to convert, then all members must agree. If the LLC was formed in Wyoming after 1990, then 2/3 of members must agree. The change is made through amending your Articles of Organization with the Wyoming Secretary of State. Note, this is a public document (more on that below).
Close LLC Benefits
- Costs: Fewer formalities mean less expensive professional and administrative fees paid to attorneys and accountants for example.
- Ease of operation: Fewer meetings and formal notices means you have more time for the things that matter.
- Transfer Restrictions: Should a member pass away or attempt to sell their membership interest, then current members receive right of first refusal. This ensures the company remains “close” and you do not wake up with an outsider having a say in your company.
- Limited Liability: LLCs provide their members protection from business debts via the corporate veil. The corporate veil prevents business creditors from being able to personally pursue a company's owners except in cases such as fraud. This benefit is extended by statute to single-member LLCs as well. This protection for single-member companies makes Wyoming unique.
Wyoming LLC Benefits
- Anonymous LLC: Wyoming does not disclose beneficial owners or managers. They also do not report information to the IRS. Wyoming's privacy far exceeds that of Nevada, Delaware and New Mexico (which don't have Close Limited Liability Companies or Corporations). Learn more about Wyoming's anonymous LLC here.
- Charging Order Protection: A personal creditor cannot break into your LLC to satisfy a judgement. Their sole remedy, which is relatively weak, is a charging order. This benefit extends to single-member LLCs as well.
- Low Annual Fees: The annual fees and requirements in Wyoming are easy. There is only a $50 annual report. There are no additional licenses or fees, unlike Nevada.
- Single Member LLCs: Wyoming is the only state in the nation to treat single and multi-member LLCs the same. All asset protection, tax and privacy benefits are available to single-member LLCs, including charging order protection.
Close companies have desirable benefits and are becomingly increasingly popular among small businesses. Be aware of potential disadvantages, though, which include:
- Transfer Restrictions: The limitation on transfers can be seen as a double edged sword. They do prevent you from easily selling your interest. However, they prevent your partners from selling their interests to people you do not know. This is also useful for families, if say you put part of your company in your children's name you do not want them to sell it without consulting you first!
- Accessing Capital: The 35 person limitation necessarily reduces how much equity can be raised.
The Internal Revenue Service considers Close LLCs to be regular LLCs. The default taxation is as a pass through entity. You may also elect for either "C-Corp" or "S-Corp" taxation if you prefer.
Wyoming Close Corporation
Wyoming's close designation is not limited to the limited liability company. You may also form a close corporation in Wyoming. The benefits of a Close Corporation are more marked only because the operating requirements of a corporation are more onerous to begin with. Corporations in other states can be required to not only hold quarterly meetings, but to keep copies of the records at their place of business. For times when a c-corp is required, regulations such as those just mentioned make a Wyoming Close Corporation that much more appealing.
Close Wyoming LLC Summary
We encourage our clients to form close LLCs whenever feasible. Their reduced complexity comes with little if any trade off for most. They are also ideal for subsidiaries of holding companies where holding an annual meeting for each would be superfluous. Learn more about Wyoming LLCs here.