Has a Wyoming or Delaware LLC ever "Saved" You?

Question

I keep seeing investors spend real money setting up Wyoming or Delaware LLCs for “extra protection” instead of simply filing in the state where they own property or operate. The marketing pitch is always stronger asset protection, anonymity, better charging-order rules, you name it.

Here’s my question to the BP community:

1. Have you ever had a real-world event—lawsuit, creditor claim, partnership dispute—where your out-of-state LLC structure made a clear, measurable difference?

2. What was the situation, how did the entity help, and (be blunt) what did the whole setup actually cost you in filing fees, registered-agent costs, franchise taxes, and annual reports?

3. Knowing what you know now, would you still register outside your home state—or was it money better spent on insurance and good operating agreements?

I’m not looking for theory or “my attorney says.” I want concrete war stories that justify—or debunk—the hype.

Love for someone to drop their experience, numbers, and lessons learned as I would like to separate marketing myth from reality.

Chris K. · Answer

@Chris Seveney

Interesting topic. In my experience, the main benefit of a Delaware LLC is the depth of caselaw. That matters because in many states, the honest answer to common membership disputes is “we have no idea.”

For example, a client of mine had real concerns about successor liability in a given transaction. Delaware has clear cases on point. In other states, it's not even clear whether courts would recognize the claim, let alone how they'd apply the law. If you're on the plaintiff side, you can drag things out in jurisdictions where the answer isn't settled. For clients, that means more time and money spent litigating.

You see this difference in available resources. For example, many lawyers use Practical Law, a paid repository written by very expensive attorneys. A search for “Limited Liability Company” gives over 300 hits for Delaware, New York, California, Illinois, and Texas. Other jurisdictions may only have less than 30.

Does this matter for "most" real estate investors? Probably not. But for sophisticated parties, caselaw certainty is a big deal.

For what it's worth, I would typically say most real estate investor should probably just open an LLC in the state they operate.

Disclaimer: While I’m a licensed attorney, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Ronald Rohde · Answer

DHS does not have jurisdiction over state formed LLCs. If you're referring to FINCEN and the beneficial owner information reports, those have been back and forth in courts for constitutionality. Right now, there is no federal obligation to provide BOI to the feds.

Greg Scott · Answer

Chris:

It seems you and I think alike on this front.  I know probably 100+ multifamily operators and almost all use in-state LLCs (in whichever state they have the property.)

The only story I ever heard of someone benefiting from an out-of-state LLC was a friend who created and LLC in Alaska.  An attorney was threatening a suit and gave up once he learned it was an Alaska entity.  Clearly it was more bluster than substance.  So, he probably saved the cost of paying for his attorney to write a letter to the opposing counsel.

On the other hand, I have heard of people getting in trouble with the government for not properly registering their foreign LLC in the state where the property resides.

Stuart Udis · Answer

Selling complicated and expensive entity structures is big business. That's why they are agressively promoted online and through social media. You see the scare tactic videos everywhere....anonymity is your best defense, stop a tenant from suing you, stop an agressive attorney or creditor from taking all of your assets etc. etc. It's complete nonsense and the firms peddling this narrative don't even beleive what they are spewing.

They get away with it because the individuals who sign up for these services never bother to ask the simple questions @Chris Seveney raised. In almost every dispute an investmnt property owner will involve themselves in, the out of stat LLC has zero relevance whatsover.....a far cry from having a clear and measurable difference. Then they get defensive without the ability to articulate why or how the WY or NV LLC is going to actually protect them.

Ned Carey · Answer

People need to be careful who they are listening to. Some of the GURU attorneys are active here on BP.
I've seen many posts from @Ronald Rohde who seems to know what he is doing. he wrote:
"What we've done is make service more difficult and costly"

I have also made hundreds of thousands of dollars from people who thought they could not be served. Your company can be legally served and you may not even know it if you don't have a good attorney like Ronald or @Stuart Udis representing you.

Ronald Rohde · Answer

I represent half a dozen companies in real estate litigation right now. What we've done is make service more difficult and costly. We had a slip and fall type PI claim get dismissed and then not refile.

One case that was probably not a true threat but it definitely saved thousands. YMMV

Chris Seveney · Answer

Yep. I also do not disagree that delaware for example has more case law to it, but most of the people here on BP are single family or small mutlifamily which those disputes are not as complex as a large commercial deal with high profile tenants and lenders etc. where things of course can be more complex. The type of case one would ever see owning a LLC on a SFR I cannot imagine would be so complex they would be rewriting case law.

Julie Knutson · Answer

It is my understanding that the Dept of Homeland Security, last year sent out a letter asking for specific investor information, as all partners being disclosed is now required. I would create a transparent LLC in the state where the property is located. I believe these new requirements are to track foreign investments.
Unless you have a large portfolio spread over different states with ownership by different investor groups, and differnt LLC's for each.
Whether large or small, I would keep it simple, and transparent, get advice from a good attorney, accountant and insurance agent.

Julie Knutson · Answer

@Ronald Rohde

https://www.fincenfetch.com/blog/boi-real-estate-requirements/

I had to just look into this a little further. I stand corrected, definitely is not the DHS.
I know my accountant sent something in last year confirming my ownership status.
I don't know the background of the BOI disclosure. I do know that it was a hot topic come in a discussion during a broker's education class, pertaining collecting all partner signatures and assigning proper title to property.
I tend to lean on the side of caution! Transparency has always worked in my favor, as does recommending confirming things with experts such as yourself in legal matters! ;)

Thanks for setting me straight! I appreciate it! Have a great week!!

Has a Wyoming or Delaware LLC ever "Saved" You?

Has a Wyoming or Delaware LLC ever "Saved" You?

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