History of LLC: Why Wyoming is the birthplace of the Limited Liability Company
In 1977 Wyoming became the first jurisdiction in the world to pass an LLC act — for a single oil company. Today the US has 21+ million LLCs, and Wyoming remains the best state for non-residents. The full history from the first statute to DAO LLC.
Key takeaways (TL;DR)
Why this history matters
Every time you form an LLC in the US — in Delaware, Florida, California, or anywhere else — you're using a legal form less than 50 years old. The Limited Liability Company did not exist before 1977. It was invented in Wyoming, based on a German law, to solve a specific problem for an oil company.
If you understand this history, you understand why the modern LLC works the way it does: why it's a "hybrid," why it's ideal for non-residents, why Wyoming remains a technology leader in corporate law. Knowing the history helps you make better decisions about business structure.
This article draws on the Wyoming Secretary of State Business Division presentation (Colin Crossman, Director, May 2023) delivered to the Joint Corporations Committee, the 2024 Annual Report of the Division of Corporations, and the original statutory texts.
1977: Hamilton Brothers and the double-taxation problem
In the 1970s Hamilton Brothers Oil Company was a mid-sized oil and gas firm headquartered in Denver, Colorado. They operated offshore projects in Panama, Argentina, and England — and kept running into the same problem.
Foreign investors wanted to fund their projects. The investors' logic: "We provide capital, you give us a share of the oil revenue." But formalizing that legally was hard.
Option 1 — Corporation (Inc.): provides liability protection but is subject to double taxation. The corporation first pays corporate income tax on profits, then investors pay personal income tax on dividends. For foreign investors, double taxation made participation uneconomic.
Option 2 — Partnership (LP): pass-through taxation (no company-level tax) but the general partner bears unlimited personal liability. Nobody wanted to be a general partner in oil exploration.
Option 3 — Limited Partnership: limited partners are protected, but if they actively participate in management, they lose protection and become general partners. Foreign investors wanted a voice in strategy without losing their shield.
Hamilton Brothers' attorneys turned to corporate lawyer Ed Hammond in Cheyenne (Wyoming's capital) with a mission: "Find us a business form that gives pass-through taxation, protection for all owners, and active management rights. If it doesn't exist — invent it."
The German GmbH as a template
Hammond studied global precedents. Germany had had Gesellschaft mit beschränkter Haftung (GmbH) — "limited liability company" — since 1892. It was a popular form for mid-sized business: protection for all participants, flexible management, and a relatively simple tax structure.
Similar forms existed worldwide: SARL in France (1925), SRL in Italy and Spain, Sociedad Limitada throughout Latin America. Panama had had Sociedades de Responsabilidad Limitada since 1966 — and that's the form Hamilton Brothers used for their Panamanian operations.
Hammond proposed porting the concept to American law. He drafted a statute that:
The draft met resistance. The Wyoming Bar Association split: some lawyers supported the innovation; others warned it would "distort corporate law." Tax advisors worried that the IRS would refuse pass-through treatment. Banking lobbies feared the new form would complicate lending.
But Governor Ed Herschler was known for his pragmatic approach to economic development. Wyoming in the 1970s was riding an oil boom, and Herschler saw the LLC as a way to attract foreign capital not just for Hamilton Brothers but for dozens of other projects.
March 4, 1977: The world's first LLC
On March 4, 1977, Governor Herschler signed the Wyoming Limited Liability Company Act — Chapter 158 of Wyoming Session Laws. It became the first LLC statute in US history. Today it's codified as Title 17, Chapter 29 of Wyoming Statutes (W.S. 17-29).
The original text contained 27 sections and fit on 12 pages. Compare that to the modern Delaware LLC Act with 200+ sections spanning hundreds of pages.
Key 1977 provisions, many still in force today:
Hamilton Brothers filed the world's first LLC a few weeks after the statute was signed. Their lawyers built a structure with American and foreign limited partners, and the project went forward.
But there was a major problem: the IRS had not yet ruled that this new business form could be taxed as a partnership.
1977-1988: 11 years of uncertainty
From 1977 onward Wyoming LLCs existed legally, but their tax status remained unsettled. The IRS issued no official guidance — creating risk for every LLC that formed.
In theory the IRS could at any moment say: "This new form looks more like a corporation than a partnership, so we'll tax it with double taxation." In that case Hamilton Brothers and every subsequent LLC would face catastrophic outcomes: back taxes for every year of existence, penalties, interest.
Because of that uncertainty, other states didn't rush to copy Wyoming. From 1977 to 1988, the LLC existed in only one state — Wyoming. Few LLCs were registered: per the SoS archives, fewer than 1,000 LLCs were formed between 1977 and 1985.
Hamilton Brothers' lawyers and the Wyoming Bar Association lobbied the IRS for guidance. The legal test was Morrissey v. Commissioner (1935) — where the Supreme Court defined four corporate characteristics: continuity of life, centralized management, limited liability, and free transferability of interests. If a business form has fewer than two of these — it's NOT a corporation for tax purposes.
Wyoming LLCs had only 2 characteristics (centralized management + limited liability) and lacked the other 2 (LLCs had limited life and required member consent for transfers). Under the "two-out-of-four test," LLCs should be taxed as partnerships.
But the IRS stayed silent.
1988: Revenue Ruling 88-76 — IRS finally approved
In September 1988 the IRS issued Revenue Ruling 88-76 — its official position on the tax status of Wyoming LLCs. After 11 years of analysis the IRS confirmed: Wyoming LLCs would be taxed as partnerships under Subchapter K of the Internal Revenue Code.
Specifically, the IRS said that Wyoming LLCs had only 2 of 4 corporate characteristics (centralized management + limited liability), so they couldn't be classified as corporations. Pass-through taxation — officially approved.
This decision transformed American corporate law. From the moment Revenue Ruling 88-76 was published, other states began copying the Wyoming statute:
By 1996 all 50 states plus the District of Columbia had their own LLC statutes. That took 19 years from the original Wyoming Act.
1997: Check-the-box and the accessibility revolution
In 1997 another major step occurred. The Treasury Department issued Treasury Regulation §301.7701-3 — the "check-the-box election." These rules let any LLC choose how it's taxed: by default as a partnership, or by election as a corporation (via Form 8832).
This radically simplified the system. Before 1997 the IRS evaluated each LLC under a complex multi-factor test (the Morrissey factors). After 1997 — just check a box on Form 8832. No election = partnership. Election = corporation.
Regulators also created the "single-member LLC" category — a structure that for federal purposes is a "disregarded entity," meaning the IRS treats it as if it didn't exist, with all income flowing into the owner's personal 1040 via Schedule C. That made the LLC accessible even to self-employed individuals who didn't want to deal with partnership returns.
From 1997 onward LLC growth went exponential. According to IRS Statistics of Income, partnership returns (Form 1065) filed by LLCs grew from 200,000 in 1996 to 2.5 million by 2010. Today over 21 million active LLCs operate in the US.
Wyoming today: numbers from the Secretary of State
Per Colin Crossman's presentation (Director, May 2023) and the 2024 Annual Report, Wyoming's Business Division reports:
A key nuance: a significant share of Wyoming LLCs are formed by non-US residents. Industry estimates suggest 30-40% of Wyoming LLCs have foreign owners. That's the highest concentration of foreign-owned LLCs among any state.
Why Wyoming attracts foreign owners:
2021: DAO LLC — Wyoming first again
On March 4, 2021, exactly 44 years after the original LLC Act, Wyoming enacted the Decentralized Autonomous Organization LLC statute (Senate Bill 38). Again, a world first: no other jurisdiction had recognized DAOs as a registered business form.
A DAO is an organization in which governance runs on smart contracts on a blockchain, with decisions made by token-holder votes. Before 2021 DAOs existed in a legal vacuum: they worked technically but had no legal personality.
The Wyoming DAO LLC is a hybrid. Legally — it's a regular LLC under the Wyoming LLC Act. Technically — governance is encoded in a smart contract integrated with the Wyoming SoS. At formation you provide the smart contract's public address; membership updates synchronize via the blockchain.
Formation requirements are the same as a regular LLC: $100 fee, Articles of Organization, Registered Agent. Additional requirements — public smart contract address and the words "DAO LLC" or "LAO" (Limited Algorithmic Organization) in the name.
Between 2021 and 2024, Wyoming registered over 1,000 DAO LLCs, including crypto projects CityDAO, Mantle DAO, Maker DAO, and dozens of DeFi protocols. It's a niche form, but it shows that Wyoming continues to lead corporate law innovation 47 years after the original Act.
What this means for non-US founders
If you plan to form a US LLC from abroad — Ukraine, Russia, Belarus, Kazakhstan, Georgia, or any other country — you're using a legal form that was originally created for exactly this scenario. Hamilton Brothers in 1977 wanted to bring in foreign investors from Panama and the UK — Wyoming designed the LLC for that purpose.
Practical takeaways for a modern non-resident:
References and sources
If you're considering forming an LLC and don't know which state to choose — try our free quiz "Which state to register your LLC in" or book a consultation via Telegram. In 30-60 minutes we'll go through your specific situation: which state, which structure (LLC vs C-Corp), which taxes.
*This article is a general overview, not individual tax or legal advice. Wyoming Statutes change annually; before forming an LLC, verify the current text of W.S. 17-29 or consult a CAA/EA. SoS Business Division data is current as of publication (May 2026).*
