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Editorial 9 MIN READ

Delaware vs Wyoming LLC: the 2021 math

Five years on, the state fees have not moved; the federal filing cabinet has

The Editors
Staff, Incorporator.org
9 min read Updated
Contents 7 sections
  1. The fee spine, unmoved since 2014
  2. The Corporate Transparency Act, in one operational paragraph
  3. What the CTA does to Wyoming's privacy pitch
  4. Charging-order law, which the CTA does not touch
  5. Case-law depth, which the CTA also does not touch
  6. The 2021 decision tree
  7. Sources

elaware still charges $300 a year to keep an LLC on the rolls. Wyoming still lands around $60. Five years after the first pass at this math and two and a half after the 2018 follow-up, the state fee gap driving the Delaware vs Wyoming LLC question has not drifted a dollar. What moved, on January 1, was the federal filing cabinet both states' LLCs now sit inside.

The Corporate Transparency Act became law over a presidential veto eleven weeks ago, and the single biggest qualitative argument for Wyoming, its privacy default, has been quietly marked down while nobody was looking.

The fee spine, unmoved since 2014

Delaware's LLC annual tax is fixed by 6 Del. C. § 18-1107 at $300, due June 1, flat, on every domestic LLC regardless of revenue or activity. Miss the deadline and the state adds a $200 penalty plus 1.5% monthly interest until the line clears. The Certificate of Formation filing fee sits at $90. Delaware LLCs do not file an annual report; the $300 is the whole recurring state obligation, separate from whatever a registered agent bills on top.

Wyoming's side is equally sleepy. Wyo. Stat. § 17-29-209 sets the annual license tax at $50 or two-tenths of a mill on Wyoming-situated assets, whichever is greater, plus a small online convenience fee. For an LLC whose assets and operations sit outside Wyoming, which describes most Wyoming LLCs, the bill lands in the $52 to $60 range and has for most of the last decade. The Articles of Organization filing fee is $100. (Wyoming's fee schedule is scheduled to step up modestly in a July 2021 Secretary of State update, but as of April the practical all-in is the same $60 we wrote in 2018.)

The ten-year state-fee arithmetic, setting aside registered agents, comes out where it did the last two times we ran it. Delaware costs $90 plus ten $300 payments, or $3,090 over a decade. Wyoming costs $100 plus roughly $60 a year, or about $700. The gap is still meaningful for a one-person LLC and still trivial for anything venture backed. The dollars have not been the argument for a long time. The argument has been case law on one side and privacy on the other, and the privacy side of that balance is what changed in January.

The Corporate Transparency Act, in one operational paragraph

The CTA passed as §§ 6401 through 6403 of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub. L. 116-283, over President Trump's veto on January 1. Section 6403 inserts a new 31 U.S.C. § 5336 into the Bank Secrecy Act. Every corporation, LLC, or similar entity created by filing with a secretary of state, domestic or foreign-registered, will owe FinCEN a report naming each beneficial owner: legal name, date of birth, residential or business address, and an identifying number from a non-expired government ID. A "beneficial owner" is anyone who either exercises substantial control or owns at least 25% of the ownership interests. Existing entities will get two years to file from the effective date of FinCEN's final rule. New entities will file at formation. The civil penalty for willful non-filing runs $500 per day. We walked the statute in January.

FinCEN published an advance notice of proposed rulemaking on April 5, 86 Fed. Reg. 17557, asking for comment on ninety-odd questions. A proposed rule is expected later this year and a final rule by the January 1, 2022 statutory deadline. The effective date of actual reporting will be whatever that final rule says it is. The point for today's comparison is that both Delaware and Wyoming LLCs, on the same timetable, under identical federal rules, will be sending the same beneficial-ownership packet to Treasury.

What the CTA does to Wyoming's privacy pitch

Wyoming's commercial agents have built a generation-long practice on a single fact: the Wyoming Secretary of State does not ask for member or manager names in the Articles of Organization or in the annual report. A Wyoming LLC can, with a competent nominee-organizer setup, keep its beneficial ownership off every public record in the state. Delaware is similar on paper (the Division of Corporations does not collect member names either), but the venture-finance ecosystem around Delaware expects cap tables in financing documents, which surface the same names through a different door.

That Wyoming default is now layered against a federal registry that will hold the information Wyoming's Secretary of State chose not to. The registry is non-public: 31 U.S.C. § 5336(c) authorizes disclosure only to specified federal agencies, to state and local law enforcement with court authorization, to federal agencies acting on behalf of foreign law enforcement, and to financial institutions for customer due diligence with customer consent. Unauthorized disclosure carries a $500-per-day civil penalty and a criminal fine of up to $250,000 for individuals. The database is not searchable by a journalist, by a plaintiff's lawyer, or by a process server. It is closed to the kinds of casual searches the privacy pitch has historically been sold against.

But the marketing has shifted. The proposition "Wyoming will not ask who owns your LLC" was, before January 1, a statement about the universe of places that would know. It is now a statement about a proper subset. Treasury will know. If a creditor's lawyer serves a properly scoped subpoena on FinCEN through the state-law-enforcement channel, the envelope that comes back has names in it. If the business banks anywhere in the U.S., which all of them do, the bank will have collected and verified the same information under the 2018 Customer-Due-Diligence Rule at 31 C.F.R. § 1010.230, and will update it in its own file under the CTA-synced revisions FinCEN is expected to release with the final rule. Wyoming's civil-discovery privacy is still better than Delaware's by a hair, because the state record remains quieter; Wyoming's regulatory privacy is now identical to Delaware's, because the binding registry is federal.

For a holding LLC used to insulate rental property from a civil judgment, that delta is a small one. For a founder who chose Wyoming because a nominee-organizer package promised the LLC would be "untraceable," that delta is the whole sale. The packages are still worth buying if anonymity in state court matters; they are no longer worth buying if the idea was to be invisible to the federal government.

Charging-order law, which the CTA does not touch

The single operational argument that survives the CTA unchanged is the charging-order statute. Wyo. Stat. § 17-29-503 still makes the charging order the exclusive remedy against a member's interest, and still extends the rule explicitly to single-member LLCs. Delaware's 6 Del. C. § 18-703 also provides for charging orders as the exclusive remedy, and Chancery decisions since the 2017 In re Mullane opinion have been consistent with that reading, but no Delaware statute slams the single-member door shut on its face the way Wyoming's does. The Colorado bankruptcy line that traces to In re Ashley Albright, 291 B.R. 538 (Bankr. D. Colo. 2003), has not been cleanly walled off under Delaware law, and asset-protection counsel still prefer the cleaner Wyoming statute for holding entities whose job is to frustrate a foreseeable creditor.

The CTA is a reporting statute, not a collections statute. A Wyoming holding LLC whose beneficial ownership is on file at FinCEN still responds to a civil judgment the way Wyo. Stat. § 17-29-503 says it responds, which is with a charging order and nothing else. Federal reporting does not convert the member's interest into something a judgment creditor can reach, and it does not give the creditor access to FinCEN's file. For asset protection, Wyoming still reads cleaner on paper than Delaware reads. What has changed is that the state record is no longer the only record.

Case-law depth, which the CTA also does not touch

Delaware's Court of Chancery remains the single best commercial court in the country, and the reason every serious venture deal still ends up in Delaware. A Series A term sheet that names Delaware is not negotiable in any sense that matters, and the case law sitting behind 8 Del. C. (the corporation code) and 6 Del. C. Chapter 18 (the LLC act) is the load-bearing asset Delaware sells. Wyoming has no equivalent, and a Wyoming LLC in a serious commercial dispute is likely to end up in a state trial court that handles oil and gas leases on alternate Thursdays.

Nothing about the CTA changes that. Chancery's docket is not on the FinCEN database. The reason to choose Delaware for an investor-facing entity is the court and the precedent, not the privacy (which was never the pitch) and not the filing fee (which was never the question). A venture-backed company forming today still forms in Delaware.

The 2021 decision tree

Form in Delaware if institutional capital is anywhere in your future. That answer has not changed, will not change under the CTA, and will not change under whatever FinCEN writes. Converting a Wyoming LLC to a Delaware C-corp during a financing still costs three to five thousand dollars in legal and tax work and still burns two weeks of counsel's attention. Start Delaware if there is a realistic chance you will need to end there.

Form in Wyoming if you are an operator or asset-holder with no institutional capital in your future. The fees are still lowest among credible-case-law states, the charging-order statute is still the cleanest in the country, and Wyoming remains the best jurisdiction for a foreign-owned single-member LLC filing Form 5472 or a holding LLC built to insulate one asset class from another. The federal privacy premium Wyoming used to carry is gone, but the operational premium, which is the charging-order statute, is intact.

Form in your home state if you operate there and raise no outside capital. The Delaware and Wyoming premiums are both sunk cost once you foreign-qualify at home. Two annual fees, two registered agents, and no benefit for a business whose activities and exposures all live in one state.

The CTA does not rewrite this tree. What it does is flatten one of the columns in the spreadsheet. Privacy was the last qualitative reason a non-asset-protection founder picked Wyoming over Delaware. On January 1 that reason got a federal overlay neither state can opt out of, and the calculus reduces to the dollars, the charging order, and the case law, which is where it always was for anyone reading carefully.

There is one loose end worth naming. The enforcement posture of the CTA is going to be a function of FinCEN's budget and FinCEN's technology, neither of which has impressed anyone in the past. The registry may end up, on a five-year view, populated mostly by the honest. If so, Wyoming's practical privacy will recover some of its prior value, because the federal file will be thin and the state file will still be empty. A rule that is written well and enforced badly produces a different equilibrium than a rule enforced well, and the comment letters going in to the ANPRM this spring will be arguing, implicitly, about which equilibrium FinCEN should build for.

Rule of thumb for April 2021: if a future investor will ask where you are formed, file in Delaware; otherwise file in Wyoming, plan on a FinCEN filing either way, and do not pay a premium for privacy the federal government will be collecting by this time next year.

Sources

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