Delaware has long been known as king when it comes to incorporations. Even today, 67% of Fortune 500 companies are listed in Delaware, which has more than 2 million business entities — more businesses than residents.
But now Wyoming — least populous state in the nation — has finally overtaken Delaware for the tops in the number of new companies registering per capita.
In 2023, Wyoming’s incorporations shot up 42%, or 45,000 new companies registering here, according to OpenCorporates’ database, which tracks companies around the world.
Delaware’s rate of incorporations, meanwhile, began dropping off in 2021. Last year, Delaware incorporations dropped by about 10,000, allowing Wyoming to finally overtake it.
Wyoming Secretary of State Chuck Gray, whose office handles the state’s incorporation papers, credits Wyoming’s business-friendly climate as well as his own office’s efforts to provide strong customer service.
“Our administration is a proud champion of small businesses,” he told Cowboy State Daily in an email. “And we take pride in the number of small businesses that have incorporated in our state.”
Last year, Wyoming had 378 new companies per 1,000 adult residents, OpenCorporates reports. That’s more than Delaware and well above the average of 36 per 1,000 adults for the rest of the United States.
Cowboy Cocktails
Critics have complained that Wyoming offers companies too much secrecy and that it’s attracting the wrong sort of businesses, like criminals who just want to cover their tracks. One of those hotspots is in Sheridan, Wyoming.
It’s true that Wyoming doesn’t collect information about ownership of the companies that register here. But neither do other states across the country, including Delaware.
The state has also been called out nationally after ultra wealthy people were discovered hiding money in Wyoming, using legal trust arrangements combined with an LLC.
It’s known as the “cowboy cocktail.” An LLC, instead of a named person, is designated as the controller of a trust. With an anonymous shell company at the helm of the trust, and a Wyoming-registered LLC, Russian oligarchs like Moscow’s Igor Makarov and Argentina’s Braggio family are able to stash their cash and hide their business dealings from prying eyes.
Gray told Cowboy State on Thursday that his office takes the issue seriously and has already taken steps to fight fraud and abuse of the system.
“Last year, at my request, our business division formalized a process authorized by existing statute that had been rarely used by previous administrations to dissolve business entities that filed false or fraudulent documents with the Wyoming Secretary of State’s Office,” he said. “Using this process our office has taken action against a number of bad actors, including foreign adversaries like North Korea.”
Gray said his office has also “markedly increased” complete, in-person audits of commercial registered agents from previous administrations.
“(That’s resulted) in a number of active investigations and findings to ensure compliance with Wyoming law,” he said. “The result has been increased awareness and compliance from the commercial registered agent community.”
Gray is also working with lawmakers to develop new legislation that would expand his office’s ability to address bad actors in the system.
“It is critical we take legislative action to add teeth to our enforcement procedures to stop fraud and abuse of corporate filings, especially by foreign adversaries,” he said.
The bill drafts his office has requested include one that would allow for administrative dissolution of business entities owned by unfriendly countries like Russia, China, North Korea, Cuba, and Iran, as well as heightened requirements for commercial registered agents and third-party filers.
Delaware Also Criticized For Secrecy
Wyoming isn’t the first to be criticized for offering bad actors too much secrecy.
In fact, as recently as 2022, Delaware was under the microscope for a lot of the same practices with the publication of a book out of Princeton University Press, “What’s the Matter with Delaware? How the First State has Favored the Rich, Powerful and Criminal — and How It Costs Us All.”
The book, by Hal Weitzman, examined why companies choose Delaware over all others, and how some corporations use multiple layers of private companies to launder money, dodge taxes, and write rules that keep the rich and powerful squarely in the shadows.
Wyoming’s LLC Advantage
Wyoming’s rise in incorporations actually began its exponential growth about 10 years ago, closely mirroring a national rise in the filing of a unique business structure that was invented in Wyoming, the Limited Liability Company, or LLC.
LLCs were born in Wyoming in 1977, crafted on behalf of Denver-based, Hamilton Brothers Oil Co. They wanted to be taxed as a partnership but enjoy the limited liability of a corporation.
The structure was essentially the Panamanian Limitadas.
At first, Hamilton Brothers went to Alaska with their idea, but it didn’t fly there. So, they came next to Wyoming, which passed the Wyoming Limited Liability Company Act.
Creating a new type of company doesn’t require federal approval. It just requires one state willing to allow the formation — but Wyoming’s new business entity did face significant roadblocks, particularly with the Internal Revenue Service, which determines how federal taxes are levied.
It took years of wrangling between Wyoming and the IRS to get things straightened out, but, eventually, in 1988, the IRS issued a ruling that would allow LLCs to decide if they wanted to be taxed as a corporation or a partnership. The latter triggers income taxes only after income flows through to the partners.
After the IRS ruling, a handful of other states adopted Wyoming’s LLC structure. From there, it spread to all the other states in the nation.
Wyoming has mirrored the nation’s exponential rise in LLCs, starting sometime around 2016. Lots of name brand companies now use Wyoming’s LLC structure. The main division of Alphabet, for example, which is Google, is not a corporation, but an LLC. Some others include Anheuser-Busch InBev, Meta Company, and IBM Technology Holding.
Renée Jean can be reached at renee@cowboystatedaily.com.
