What is a Wyoming Close LLC?
The Wyoming Close LLC is a more restrictive type of Wyoming LLC (Limited Liability Company). The Close LLC creates greater restrictions on transfers, membership, membership rights, and dissolution. This entity is typically reserved for use by family businesses, estate planning purposes, and forcing a rigid structure on closely held businesses. The Wyoming Close LLC was introduced by the state legislature in 2000 (Wyoming also offers close corporation formation options, which allow a closely-corporation to operate in a manner closer to an LLC, reducing many of its corporate formalities).
Wyoming Close LLC Features
What separates a Wyoming LLC from a Wyoming Close LLC is the Close LLC’s restrictions. Those restrictions are outlined below:
Company Interest Transfer Limitations
Company interests cannot be transferred to any other party without the unanimous membership consent, unless otherwise established in the operating agreement.
Although Wyoming LLCs aren’t required to have an operating agreement or membership certificates, however, the law seems to mandate that Close LLCs utilize both, as the following clauses are required by law in the operating agreement and on the membership certificates:
Operating agreement clause
“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.”
Membership certificate requirements
The membership certificates must clearly state the the assigned membership is that of a Wyoming Close LLC.
The Close LLC’s management responsibilities are assigned according to the division of profits and losses among members, which means the person receiving most of the profits or losses has most of the management responsibilities. This, however, can be altered in the operating agreement.
Withdrawal of Membership
A member can only withdraw from a Close LLC if all other members with voting rights agree, unless otherwise outlined in the operating agreement.
Dissolution of the Company
A Close LLC can only be dissolved if all members agree or if a certain time has been specified in the operating agreement.
Why Form a Close LLC?
Below, you’ll find the advantages of forming a Wyoming Close LLC:
Wyoming LLC laws assert that the sole remedy for a creditor against a Wyoming LLC is a charging order. And if a creditor knows that the LLC is a Wyoming Close, they may be less inclined to sue. That’s because even if the creditor is awarded a charging order, creditors only receive payment if the LLC manager makes a distribution. The LLC could simply decide not to make any distributions, the creditor is out of luck. Many attorneys that specialize in Wyoming LLC law also believe that even if a creditor doesn’t receive payment, they also have to pay income tax on the undistributed income even though the income wasn’t distributed. This may not always be the case, of course, but it will certainly make savvy creditors wary of suing.
The Close LLC was designed for closely-held family businesses. Members control who can be a member and a member of a Close LLC cannot sell or transfer their company interest total membership consent. Likewise, members cannot leave the LLC without consent of all the members, and unless the operating agreement says otherwise, no one is entitled to the return of their initial contribution.
Wyoming is a fantastic place for estate planning (no estate tax) and the Wyoming Close LLC can work as an estate planning tool. One of the most valuable reasons to form Close LLC is for estate planning. In addition to Wyoming’s estate friendly taxation, closely held assets, such as Wyoming LLC membership can be devalued, and instead of paying a 40 percent federal tax on estate assets in a Close LLC, the assets could be taxed at half that because of their non-liquidity. This is a fairly tricky strategy, though, so you will want to consult an attorney before proceeding with such a plan.
Wyoming Close LLC Formation
Forming a Close Wyoming LLC is an extremely simple process. You simply complete the Articles of Organization and check a box indicating that the LLC is a Close LLC.
Once the LLC is formed, state law mandates that you include the clauses (listed above, under restrictions) in the operating agreement and on the membership certificates.