Everything You Need to Know About the Wyoming Close LLC

One of the advantages of forming a business in Wyoming is the array of options you have at your disposal. You can form an LLC in any state, but Wyoming pioneered the Close LLC, a unique spin on the LLC structure designed specifically for small family-owned companies.

When you hire us to form your Wyoming Close LLC, we offer the use of our business address and mail forwarding, free of charge!

What Is a Wyoming Close LLC?

Limited Membership

A Wyoming Close LLC is intended to benefit family-owned companies. In essence, this structure allows parents to form a company and pass it along to their children when the younger generation is ready to assume full responsibility.

By limiting who can be a member and what rights members have, a Wyoming Close LLC allows parents to keep a company completely in the control of the family.

For example: membership interest of a Close LLC must be offered for sale to other members before any outside party, and the sale of shares—either to other members or outsiders—must be approved by all other members of the company. This allows parents to make their kids members but restricts their child’s ability to dilute ownership by selling shares to people outside the family.

Management Control

In the Operating Agreement of a Wyoming Close LLC, all management control can be vested in a single member or multiple members (usually in the hands of a single parent or set of parents). Again, the advantage is that children can be made members whose shares have value, but who have little to no actual control over the company.

For example: you, your husband, and your son may own equal shares of your Wyoming Close LLC. However, management is vested solely with you. In this case, even though your son and husband technically own two-thirds of your company, control of the company flows entirely through you.

Another distinct element is that managers entirely control distributions. With a Close LLC, distributions do not have to be equal to a member’s share in the company. Distributions are completely at the discretion of the manager.

Transferring Wealth

Perhaps the greatest advantage of a Wyoming Close LLC is the long-term strategy for transferring wealth to new generations. The advantage lies in how a Close LLC allocates control of the company and how the value of a member’s share in the company is affected.

Here’s how it works:

You, your wife, and your daughter own your Wyoming Close LLC. When you start your company, you and your wife initially own 80 percent of the company. Your daughter owns 20 percent. Over time, you slowly turn over more and more shares to your daughter, with the goal being that she will eventually be the sole owner.

However, because this is a Wyoming Close LLC, all management power is vested with you and your wife. Though your daughter will own more and more shares of the company, she has no voting rights or ability to manage the company.

Also—and this is critical—because she has no control, the shares you turn over to her throughout the years will be assessed at a significant discount from market value. This means when you transfer shares and assets, the tax burden will be less.

This discount is called Valuation Adjustment.

Let’s say your company is worth a million dollars. When you transfer ten percent of shares to your daughter, it may seem on the surface that you’re transferring $100,000 worth of shares. But in reality, those shares are technically worth far less.

Why?

Two reasons: lack of control and lack of marketability. Those shares come without voting rights, which means they give your daughter no control over the company. Furthermore, those shares can’t be sold without the approval of the manager, which means your daughter cannot easily find a buyer for them.

These two restrictions mean that the ten-percent share you’ve transferred can be valued at far less than $100,000, and thus the tax that must be paid on those shares will be assessed at the lower value.

In this way, assets and wealth can be transferred over time from one generation to the next with the least amount of taxation.