What is a Wyoming Close LLC?
The Wyoming Close LLC is a slightly altered version of the Wyoming LLC (Limited Liability Company), allowing for greater restrictions on transfers, membership, membership rights, as well as dissolution. The restrictions make the Close LLC an indispensable solution for estate planning and instilling a rigid structure into a closely held business. The Wyoming legislature introduced the Wyoming Close LLC in 2000 while amending the the Wyoming Limited Liability Company Act. While a relatively new addition to the assortment of Wyoming business entities, the Close LLC is backed by years of LLC case law and some of our nation’s strongest asset protection statutes. Our courts and laws tend to favor business owners (when they act and operate their companies within reason), so when you form a Close LLC in Wyoming, you should feel assured that the entity will serve you well into the future.
Wyoming Close LLC Restrictions
What differentiates a Close LLC from a typical Wyoming LLC is the Close LLC’s restrictions. So, to get a better idea of how a Close LLC functions, you need to look at the restrictions instilled in a Close LLC:
Operating Agreement and Membership Certificate Clause
In the operating agreement and on any membership certificates the following clause must be included:
“NOTICE OF RESTRICTIONS ON TRANSFERS AND WITHDRAWALS.
The rights of members in a close limited liability company may differ materially from the rights of members in other limited liability companies. The Close Limited Liability Company Supplement, articles of organization, and operating agreement of a close limited liability company may restrict transfer of ownership interests, withdrawal or resignation from the company, return of capital contributions and dissolution of the company.”
Transfer of Company Interest
No company interests can be transferred to any other party without the consent of all the members of the LLC, unless otherwise established in the operating agreement.
By default, the management responsibilities of a Close LLC are assigned in proportion to the division of profits and losses among members, so the person with the most to gain or lose would be stronger in decision making processes. However, like a normal LLC, full control of the company can be vested in a single manager or multiple managers in the Close LLC’s operating agreement.
Withdrawal or Resignation from the Company
Unless outlined otherwise in the operating agreement, a member can only withdraw from a Close LLC if all other members with voting rights agree. Once you’re in a Close LLC, you’re in for as long as the company exists.
Return of Capital Contributions
Members of a Close LLC will not receive any return of their contribution to the company’s capital unless: all members consent to the return of capital; the company is dissolved; or the operating agreement or articles of organization specify such an action. Members can only receive cash in return for their capital contribution and no member can dissolve a Close LLC for failure to return their contribution.
Dissolution of the Company
Dissolution of a Close LLC can only occur if all members agree to wind up the business, or if a certain time specified in the operating agreement.
Why Form a Close LLC?
Many people looking at the differences between a Wyoming LLC and the Close LLC write off the Close LLC as an entity just for families. While families do in many cases constitute the membership of many Wyoming Close LLCs, that doesn’t capture the full picture of uses and advantages. Below, we’ll try to illustrate why someone would want to form a Close LLC in Wyoming:
One of the most valuable reasons to form Close LLC is for estate planning. The State of Wyoming does not levy an estate or tax, which is reason enough for many people to form a Wyoming LLC, but members of a Close LLC have the potential to pay much less in federal estate taxes than does a normal LLC. Federal gift taxes, taxes that would be paid when someone is gifted more than $14,000 in a year, become estate taxes when upon death a family member passes part of their estate onto the next generation. These estate and gift taxes are at an even 40 percent rate. That’s a massive tax bill! Close LLCs cannot dodge this tax, but living members can pay less. How? Well, much like a Wyoming limited partnership, a Close LLC is able to discount its assets. According to the IRS, the fair market value (the value assigned to a company’s assets by a business appraiser) of a company’s assets is what determines the worth of those assets. That means if someone inherits interest in a company and that interest is appraised at $10 million, then they will receive an estate tax bill for 40 percent of $10 million (a $4 million tax bill). However, because of the restrictions in place on a Close LLC, the assets do not have the same liquidity, and assets of the LLC can’t be sold and no new members can be admitted without the vote of every member. Those restrictions make the assets of the Close LLC appraise for much less and can be discounted anywhere from 20 to 50 percent. That could amount to a massive tax savings. Think about it: if you inherit company interests typically worth $10 million, but the company interests are appraised at $6 million because the interests are in a Close LLC, your estate tax bill would be $2.4 million instead of $4 million, saving you $1.6 million in taxes. In the Close LLC’s operating agreement, all voting power and management can be vested into a single person who oversees distributions and company decisions, which is typically what you want in a business entity used for estate planning, as some members would have total control of the company, and the eventual beneficiaries would have no say in company decisions.
Small Family Business
The Close LLC was designed for small family businesses. This is showcased in the members ability to control who can gain access to membership. The members have complete control over who gains access to membership. A member of a Close LLC cannot sell or give away their company interest without the consent of all members. Also, unlike many other entities, no one can leave without 100 percent membership approval, and upon leaving, unless introduced to the operating agreement, no one is entitled to the return of their initial contribution (the forced return of contribution could potentially force the dissolution of the business).
Wyoming laws provide that the sole remedy for a creditor is against the member of an LLC is a charging order. The charging order is a court order that charges the managers of the LLC with the responsibility to pay the creditor the troubled member’s share of the distributions. The creditor will only be paid if the manager of the LLC makes a distribution, if no distributions (the creditor typically has 20 years to collect) are made, the creditor will not be paid. Some attorneys even believe that a creditor may also have to pay income tax on the undistributed income even if the income isn’t distributed. In reality, of course, things don’t always go as planned, and you might not be sure of the outcome of a lawsuit. However, if a creditor knows your valuable assets are part of a Wyoming Close LLC they may be less likely to sue and more open to settling debts out of court.
Wyoming Close LLC Formation
To form a Close Wyoming LLC, you simply complete the Articles of Organization like you would when forming a regular Wyoming LLC. The only difference being that you check a box to indicate that the LLC is a Close LLC.
If you’re interested in forming a Wyoming Close LLC, we’d love to help. For $200 total, we’ll form the Close LLC, provide an operating agreement that you can amend to suit your Close LLC’s needs, and give you a year of the best registered agent service in Wyoming.
Wyoming Close LLC Operating Agreement Requirements
With a Close LLC, the vast majority of how the company will operate must be clearly outlined in the operating agreement. If not, the Close LLC will be confined to the default status set by the state statutes as described above under Wyoming Close LLC Restrictions. Below, you find a rough checklist of the areas you want to have covered in your Close LLC operating agreement:
- Include the NOTICE OF RESTRICTIONS ON TRANSFERS AND WITHDRAWALS clause in the operating agreement and on all membership certificates.
- Address transfer of company interests in the operating agreement if you want a more flexible transfer of interest policy.
- If certain members should retain more important roles in the company, or if there is a sole manager responsible for all company decisions, outline this in the section that addresses management.
- Also, if you want to introduce a different function other than upon the consent of all members, be sure to address dissolution requirements, return of capital contribution, and the withdrawal of membership.
Hire Us to Form Your Wyoming Close LLC
- Wyoming Close LLC Specialists
We work only with Wyoming filings, forming LLCs and Wyoming corporations every day.
- Privacy Included
We respect your privacy and expect others to do so as well, so we allow you to use our address on LLC filings to keep your home address and personal information private.
- Fast, Same Day Filings
We’ll form your Wyoming Close LLC in one day. The folks down at the secretary of state know us, and we know them, and we can form your LLC instantly online.
- Best Wyoming Registered Agent Service
Every Close LLC order includes a year of Wyoming registered agent service. We’ve created online accounts where you can track all your Wyoming LLC’s documents. Any service of process, annual report reminder, and any other documents we receive on behalf of your business can be found online in your secure account.
- Service Options
If you’re starting an LLC in Wyoming from a different state or a different country, we offer Wyoming mail forwarding and Wyoming virtual office services.
- We Provide Everything You Need
Anything your need for your Wyoming LLC, we provide at no additional cost: operating agreements, membership certificates, resolutions to open a bank account, any state form you might need to file.