What is a Wyoming Close Corporation?
A Wyoming Close Corporation is a corporation formed in Wyoming that allows shareholders a unique set of rights that make the internal workings of the corporation much like a partnership or LLC, while maintaining the limited liability protections, taxation status, and use of stock like a typical corporation. The main differences, structurally, between a Close Corporation and a normal corporation is that shareholders of a close corporation can choose to eradicate the corporation’s board of directors and not attend to mandatory annual and shareholder meetings without sacrificing limited liability protections. Shareholders are also responsible for maintaining tight ownership restrictions in Close Corporation, which makes it ideal for family businesses.
For small businesses seeking the prestige and structure of a corporation, the Wyoming Close Corporation could be the perfect solution, as the entity has all the trappings of a typical corporation without all the trivial formalities.
Wyoming Close Corporation Features
To further explain the differences between a regular corporation and a close corporation in Wyoming, the simplest thing to do is look at the features Wyoming Close Corporation and how those shape the entity. These main features are listed below:
An interest in shares of a Wyoming Close Corporation cannot be transferred unless all shareholders agree to enter into a buy-sell agreement. This means that if you own shares in a close corporation, you can’t sell them to anyone else unless all the other shareholders agree to the sale. This is the general rule of Wyoming Close Corporations, however, there are a few exceptions. Shareholders of the close corporation can potentially transfer their shares to the following parties: other shareholders if they hold the same class of stock; to members of the shareholders immediate family or to a trust in which immediate family are the beneficiaries; to remedy a bankruptcy; for a loan in which the transferee has no voting rights; or if the transfer is made after the close corporation has dissolved. However, before this transfer can take place, the shareholder must provide in writing the proposed transfer agreement and offer the shares for cash to the corporation. If the corporation refuses to buy and the third party is eligible, the transfer would be allowed.
One of the most cited disadvantages of a starting a corporation is that the corporation requires a vast amount of maintenance like shareholder meetings, resolutions, board of director meetings and so on. However, a Wyoming Close Corporation is able to operate outside of these restrictions. So long as shareholders agree in writing to regulate the business operations and corporate powers in a shareholder agreement and in the Articles of Incorporation, they can eliminate the board of directors and in effect take on the informality of a partnership or LLC. This can save a lot of time by not holding meetings and allowing the shareholders to make decisions on the fly without the need for corporate resolutions. The Wyoming Close Corporation statute also clearly states that failure to hold annual shareholder meetings and board of director meetings will not void the limited liability protections afforded to the close corporation. Wyoming Close Corporations are also not required to adopt bylaws so long as the provisions required in Wyoming corporate bylaws are listed in the Articles of Incorporation or shareholder agreement.
The Power of the Shareholder
In most corporations, simple majority votes of shareholders will decide what happens within a corporation. However, with most decisions in a Wyoming Close Corporation, the shareholders must give unanimous consent. That means if one shareholder dissents, the corporation must listen as all the shareholders must consent. Conversely, in the shareholder agreement, the shareholders can vest all decision-making power in a single person, giving them complete control of the corporation, similar to a manager in a Wyoming Close LLC.
Optional Feature: Compulsory Purchase of Shares Upon Death
One option that is of interest to some Wyoming Close Corporations is the ability to force the corporation to purchase the shares of a shareholder that has died. This practice serves both the shareholder and the corporation. It allows for the heirs of the shareholder to receive cash for the shares, and it ensures that the Wyoming Close Corporation maintain tight control over shareholder status. To elect for the close corporation to purchase shares upon the death of a shareholder, the provision must be included into the Wyoming Close Corporation’s Articles of Incorporation. If making an amendment to add this provision, at least two-thirds of shareholders must agree to the amendment.
Why Form a Wyoming Close Corporation
Below, you’ll find the top reasons to form a Close Corporation in Wyoming.
- Small business wants to operate as a corporation, yet doesn’t want to adhere to corporate formalities.
- A corporation wants to maintain strict control over ownership and transfers.
- A family wants to start a business in which only family can own stock, and to which future generations of the family can be given company shares.
- Shareholders want to ensure their stakes in the corporation can translate into cash for their heirs, allowing that the corporation adopt provision for the compulsory purchase of shares upon the death of a shareholder. Note: Since the shares of a Wyoming Close Corporation are tightly controlled and not easily sold, this type of asset should qualify as an asset that can be discounted upon appraisal, allowing heirs to potentially save on estate taxes, similar to ownership in a Close LLC or a Wyoming Limited Partnership (LP). However, stock in the Wyoming Close Corporation can become much more convoluted as an estate planning strategy and the Wyoming LP or Close LLC would likely be simpler approach to business entity estate planning.
How Are Close Corporations Taxed?
Like any other corporation, Wyoming Close Corporations are taxed, by default, as a C-corp. That means that the corporation will be taxed by the federal government (Wyoming doesn’t have a state corporate tax or a personal income tax) on its profits, and when the shareholders take distributions, they will have to pay federal personal income tax on their dividend or distribution (this is what’s known as double taxation). However, even a close corporation can elect to be taxed as an S-corp, allowing to be taxed as a pass-through entity, avoiding the double taxation. S-corp status comes with its own set of challenges, though, as it requires that any shareholder who provides services to the S corporation shareholder provides services, he or she must receive “reasonable compensation” for those services, which often translates to a salary for each shareholder actively working for the corporation.
Wyoming Close Corporation Formation
To form a Wyoming Close Corporation, you simply follow the directions on how to start a corporation in Wyoming, like you would a normal corporation, completing and forming . The major difference is that you check a box indicating that the corporation is a Wyoming Close Corporation. To take advantage of all provisions allowed in the Wyoming Close Corporation, you will need to include many of those provisions in the Articles of Incorporation. Articles of Incorporation can be amended at any time, however, amendments do require filing fees and unanimous shareholder approval.
What to Include in Wyoming Articles of Incorporation
For many of the provisions allowed for in Wyoming Close Corporations, the provisions need to be addressed in writing in the Articles of Incorporation (the formation document you file with the Wyoming Secretary of State). Prior to filing the Articles of Incorporation, you should consider the following areas and decide whether to include or exclude these provisions in the Articles of Incorporation.
- Compulsory Purchase of Stock Upon the Death of a Shareholder
Do you want the corporation to be forced to buy the shares of a shareholder who dies? If so, include this provision in the formation document.
- Eliminate the Board of Directors
If the Wyoming Close Corporation is to operate without a board of directors, this information must be included in the Articles of Incorporation and in the shareholder’s agreement.
- Right to Dissolution
The Articles of Incorporation of a statutory close corporation in Wyoming may vest in a single shareholder the ability to dissolve the corporation, pending the consent of all other shareholders.
- Transfers of Interest
By default, all shareholders must consent to valid transfers of interest. However, this rigidity of interest transfer can be altered in the Articles of Incorporation. To allow for simpler transfers of interest, the Articles of Incorporation must address the rights of shareholders to give away or sell their shares and what shareholder approval process will occur to allow or disallow that kind of transfer.
Why Hire Us to Form a Wyoming Close Corporation
When you hire us to incorporate a company in Wyoming, you’ll get the best Wyoming incorporation service, which includes:
- Wyoming Corporation Specialists
We work only with Wyoming filings, forming corporations and Wyoming LLCs everyday.
We respect your privacy and want others to as well. That’s why we allow our clients to use our address on incorporation filings to keep your home and personal information private.
- Same Day Filings
When you order a close corporation we will complete the filing in one business day.
- The Best Wyoming Registered Agent Service
When you order a Wyoming close corporation formation, every order comes with a year of Best Wyoming Registered Agent service. That includes an online account where you can track all your Wyoming corporation’s documents. Any service of process, annual report, or any other documents we accept on your corporation’s behalf will be found online in your secure account. We upload documents we accept on your corporation’s behalf within minutes.
- Mail and Office Services
If you need Wyoming mail forwarding or Wyoming virtual office service for your corporation, we’ve got you and all your business’ mailing needs covered. We scan mail daily, and our office is across the street from the post office, so you can count on fast and reliable service.