US INCORPORATION TRENDS: Part 1

Article by Ana Muñoz Padrós & the OpenCorporates Insight Team

A massive growth in incorporations of LLCs in Wyoming over the past five years has caused it to overtake the historic leader in incorporations, Delaware, according to a new detailed analysis of US company incorporations by OpenCorporates.

Delaware is well known as the default jurisdiction in the US. If you’re incorporating a new tech startup, and looking for VC money, you’ll probably incorporate in Delaware. Most international corporations have their primary US legal entity in the US. Most listed companies are incorporated in Delaware. And it is the domicile of over 67% of Fortune 500 companies, according to Delaware’s Division of Corporations.

There are many reasons for this – historical, legal, financial, opacity (see Hal Weizman’s What’s the Matter with Delaware? for a detailed walkthrough of the history). What’s important to understand is this didn’t happen instantly, but over a period of a century or so.

So when we decided to look at legal entity incorporations per capita by state it wasn’t a surprise that the number of incorporations in Delaware was considerably higher than the other states. What was a surprise was the number of incorporations per capita in Wyoming.

An analysis of incorporations over the past 10 years from OpenCorporates comprehensive database of US legal entities have shown that the growth has been steep, and relatively sudden. 10 years ago, while Wyoming per-capita incorporations were greater than most other states, they were still within the same range. Since then, and particularly since 2016, they have exploded, tripling in the past five years. And last year, Wyoming grew 42%, surpassing Delaware for the first time with 378 new companies per 1,000 adults, compared with the average of new companies in the rest of the US of 36 per 1000 adults (all states plus DC, excluding Delaware and Wyoming).

Registrations of new companies per 1000 adults by US state (inc DC). Each line represents a state, with the grey ones at the bottom showing all jurisdictions (50 states + DC), excluding Wyoming and Delaware. Population: U.S. 2020 Census decennial data

Last year, the Cowboy State recorded a historical 42% increase in incorporations, up to 378 per 1,000 adults. Download the data.

There are a couple of key points worth making here. First, why per capita incorporations? Well, you would expect a state like California, with vast numbers of people, to have more companies set up each year than a smaller one (population-wise) like Rhode Island. Doing it per capita (or per 1000 adults) allows us to make useful comparisons between the states. Perhaps you would expect the type of state (rural, metropolitan, dense, sparsely populated) to also have a difference. In fact, not really, or at least not compared with the outliers of Delaware and Wyoming. We have used the 2020 Census decennial data as our source for population information, given its accuracy and comprehensiveness.

Second, the vast majority of these incorporations in Wyoming are LLCs (Limited Liability Companies), which for non-Americans, is quite different from what many countries would consider a company with limited liability (a distinct legal entity with equity and shareholders). In fact, they are more akin to a Limited Liability Partnership, with individual members, rather than shareholders.

Third, the huge rise in Wyoming incorporations doesn’t appear to have come at the expense of any individual jurisdiction. Yes, the growth of Delaware appears to have stalled, but only recently and not nearly enough to account for the growth (in 2023, for example, Delaware incorporations dropped by about 10,000, but Wyoming increased by over 45,000). So the question is, what is driving this – is it that Wyoming is taking incorporations from each of the US states equally, or perhaps has it found a whole new market for US incorporations.

Next post we’ll look at the rise of the LLC, a legal form that was actually invented in Wyoming.

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