LLC vs C-Corp? Wyoming vs Delaware? Which one to choose when forming a company in the US?
First of all, I’m not a financial consultant, just sharing my experience and giving you all the necessary information so you can make your decision based on information and not guesses. In this article I will share every resource and piece of information I found online while doing my research. So I hope this will be helpful.
Table of content:
- LLC vs C-Corp
- Wyoming vs Delaware
- Which is best suitable for you
- Useful resources
LLC vs C-Corp:
|Owners & formation||LLCs are organized under an Operating Agreement, a contract between owners (“members”) with articles of organization specifying how the business will be run and how costs and profits will be shared||Any individual can own shares at one of these companies without having any responsibility for working there|
|Structure||Structuring an LLC is a relatively open-ended process – the articles of organization are a product of the members’ discretion||Corporations are structured based on the principle that control and ownership can be separate. Owners are called shareholders and they may or may not be involved in the day-to-day operations of the company|
|Liabilities||Limited liability for founders; moving liability for debts and obligations of the business from the entrepreneurs into the company itself.||Corporations provide limited liability because shareholders are generally not individually liable for the debts and obligations of the company.|
|Taxes||Pass-through taxation which allows LLC’s owners to pay personal income taxes on the income of the business||Corporations must pay corporate taxes on their own profits (and have extensive filing obligations). Shareholders are taxed separately, if the company distributes dividends to them (or if it pays them a salary, in the case of employee owners)|
|Fund raising||Very hard and is almost never recommended||Investors want C-Corps to invest in, C-Corp is the go to option if you’re planning fund-raising|
2. When to choose what?
Choose LLC if:
- Your business is operated by a single person, or multiple fixed people with fixed responsibilities and ownership.
- You don’t have a goal of fund-raising or going through an incubator program.
Choose C-Corp if:
- You’re planning on raising money.
- Sell stocks of your company.
Wyoming vs Delaware
Here are two comparisons between Wyoming and Delaware LLC and C-Corps, hopefully this will make things simpler.
Wyoming vs Delaware – C-Corp
|Delaware C-Corp features||Wyoming C-Corp features|
|Delaware is the gold-standard for start-ups that seek venture funding and angel investors.||Wyoming is better suited for smaller, privately controlled companies.|
|Delaware is considered the most business friendly state in America due to a long history of established legal cases that provide business owners and corporate lawyers with a better certainty of how different types of disputes are most likely to be resolved.||Wyoming companies typically benefit from lower costs and improved flexibility.|
|A majority of Fortune 500 companies are registered in Delaware.||Wyoming does not collect any corporate tax information to be shared with the Internal Revenue Service.|
|A yearly franchise fee (yearly state fee which you can pay online) is $175 or more, depending on the number of shares||Wyoming has no franchise fee|
|Wyoming corporations are allowed to have nominee shareholders|
Delaware vs Wyoming – LLC features
|Delaware LLC features||Wyoming LLC features|
|Delaware LLCs offer exceptional flexibility, but can be complicated and costly to maintain||Low cost, manageability, flexibility, and a focus on small business|
|Delaware’s rules regarding LLCs are modeled after the original Wyoming LLC Act||Wyoming has no franchise tax|
|Delaware’s laws provide the strongest shield of any state||Wyoming has no state corporate income tax|
|Delaware has the most pro-business laws of any US state||Wyoming has no state personal income tax|
|Delaware has no state income tax if your operations are in other states or countries||Wyoming has minimal annual fees|
|Annual Franchise Tax is $300||Wyoming does not require listing the members of an LLC|
|Registered Agent Service cost is $50/year and included with a new company||Wyoming LLC rules are easy to understand|
|American LLC structure as we know it today was created in 1977 in Wyoming|
|Registered Agent Service cost is $50/year and included with a new company|
Which is best suitable for you
1) If you aren’t planning to raise venture capital nor issue stock employees, an LLC will be easier to manage and there are no double taxation issues. Generally, fully foreign-owned LLCs are not taxed in the US
2) A Wyoming LLC is fully anonymous, and only includes a yearly filing fee of $50.
1) Raising money – Investors will want a C Corp. Delaware is the best choice because it is the most common structure for investors and most business friendly jurisdiction.
2) Issuing stock options to your employees. You will not be able to issue stock options being an LLC.
NOTE: If you decide to issue stock options, you will not be able to as an LLC. You can always convert to a C Corp in the future though.
NOTE: Raising funding as an LLC can be difficult because investors prefer the Delaware C Corp structure. You can always convert an LLC to a C Corp though.