Long known as a business-friendly frontier, Wyoming, the state that pioneered limited liability corporation (LLC) registrations some 40 years ago, is again disrupting regulatory norms. Last week, lawmakers in Wyoming’s House of Representatives introduced a fourth blockchain bill.
Sponsored by Wyoming State Rep. Jared Olsen, the Series LLC initiative enables distributed ledger entrepreneurs to domicile multiple legal entities within one LLC, while lowering their registration costs to a single annual filing fee.
Olsen’s bill is just the latest piece of progressive crypto regulation endorsed by a core trio of Republican legislators: Olsen and Reps. David Miller and Tyler Lindholm.
If anyone could be credited as the movement’s leader, it’s Lindholm, who is the original “blockchain cowboy,” according to Robert Jennings, spokesman for the Wyoming Blockchain Coalition, a lobbying group promoting the local crypto industry.
The Series LLC bill joins three other House proposals: A measure that exempts crypto exchanges from the state’s Money Transmitters Act (MTA) law; a bill that spares specially designated initial coin offering (ICO) “utility tokens” from securities registration with the state; and most recently, a corporate Blockchain Filing bill that allows for business ownership records to exist on a distributed database. The House Monday passed the first two of those bills, sending them to the Senate. Separately, a bill that would exempt cryptocurrencies from state property taxes has been introduced in the Senate.
Rep. Olsen told ThirtyK that the benefit of his Series LLC bill “is not having to file and register independently all those limited liability companies.” Olsen also said series structures are becoming increasingly popular with companies developing autonomous car services like Uber and Lyft.
Enacted by the state legislature in 1977, Wyoming LLCs revolutionized American business registrations by offering stakeholders a vehicle that combines two tantalizing concessions: Limited liability and “pass-through” taxation.
First of all, LLCs mitigate legal risks for members, enabling them to invest in a business opportunity without absorbing unlimited liability if it fails. Secondly, while certain LLCs are taxed as partnerships or corporations, the majority are pass-through entities, where business profits are distributed proportionally among members, who then pay tax at their personal income rate.
Going by the most recent academic analysis of legal entity filings, a Liberty University study of LLCs, corporations and limited partnerships formed between 2004 and 2007, the LLC “is now undeniably the most popular form of new business entity.” In fact, nearly two-thirds of all new companies registered in 2007 were LLCs.
First conceived by Delaware legislators in 1996, series LLCs take limited-liability protections to a higher level. Commonly used in real estate investments, the series LLC’s honeycomb-like architecture allows corporate assets to be “segregated and compartmentalized,” which means the debts and liabilities of one LLC cannot be enforced against another entity, nor the series as a whole.
Furthermore, “the assets of each internal company can be transferred among each other while still preserving an internal liability shield that protects each company,” according to New York Law School professor and tax regulation expert Houman Shadab.
Shadab said that series LLCs will be essential for decentralized ecosystems, as their unique legal structure will enable so-called “distributed autonomous corporations” (DACs) to realize their full potential.
DACs are a group of smart contracts that run on a blockchain database, which distills a corporation and all its operations into preprogrammed code and application logic. According to Douglas Park, a crypto-focused corporate securities attorney based in the Bay Area, “a series LLC is useful for storing related smart contracts or types of blockchain-based transactions,” in a format that reduces operating costs for enterprises.
“Even in a decentralized organization, transaction costs still exist,” he said. But the most persuasive real-world use case for decentralized series subsidiaries might be private equity firms that could optimize parent company efficiencies by migrating portfolio company operations to smart contract systems, he added.
Lindholm, a 34-year-old millennial and lead sponsor on two bills – the Blockchain Filing initiative and the ICO utility token exception – is optimistic that all four reforms will pass the legislature by the time the budget session ends on March 9.
If lawmakers approve the bills, it will be up to Governor Matthew Mead, whom Lindholm characterized as “pro-economic development,” to render the final decision. So, for now, Wyoming’s blockchain cowboys are “still making sausage,” Lindholm said.