> 2. Tax benefits. You can deduct qualified business expenses from the total income of the business. Here’s a simple example: If you spent $1,000 on servers and your website made $10,000, then you’ll only pay taxes on the $9,000 in profit.
You don't need an LLC to deduct such expenses. Even sole proprietors can deduct business expenses against business profits.
Furthermore, financial literacy also seem very, very low, almost as if the powers to be maliciously wanted to misinform people. "You get taxed on profits, not on revenue" seems like the fundamental axiom of business, yet here it is, present as "this one weird tip the IRS hates". See also "I don't want a raise, it'll put me in a higher tax bracket".
Italy, Germany and SwitzerlanD just to pick 3 I’m familiar with, are nothing like U.K./Estonia
On the other hand incorporating a C Corp in Delaware costs between $89 and $399 and you can do it online by yourself
In all, this is about 1400€ excluding VAT for getting started, excluding accountant or fiscal adviser fees.
Then there is the yearly social contribution of about 350€, even with zero turnover, and more, before you have booked your first cent of revenue.
However, the law then requires that you have an external auditor of your company's books, which runs 1.5-3K for a one-man operation doing uncomplicated things.
Sole proprietor is easier, and you can do your books yourself, but then the liability is unlimited.
I think you'll find many of the southern EU states are similar, the incorporation may be cheap but the accounting is less so.
For all of them, you can do it yourself and most of them completely online.
Edit: yes, it's not entirely online, but it takes half a day to complete
- Online (with a citizen ID card reader)
- A fully registered Ltd company within an hour (that's the gov marketing slogan)
- Costs ~ 360 EUR
The Danish government values entrepreneurs, especially ones that keep 40,000 DKK in their company bank account.
* Forming a full GmbH will cost around 1000-2000 EUR for lawyer,notary,tax accountant. You strictly speaking don't need lawyer nor tax accountant, but unless you are very familiar with the process, I'd recommend you enlist their services. It will make your life substantially easier. You will also need at least 12500 EUR in cash that will be the founding capital for the GmbH - you'll need to underwrite a security for another 12500 EUR for the rest of the founding capital or just pay a total of 25000 EUR for the founding capital. You can have the new company pay all fees from that founding capital. It's there to be used, you can pay yourself a (reasonable) wage from day one, if you choose to.
* Forming a UG is substantially cheaper: Founding capital is at least 1 EUR (though you should have more or you'll bankrupt the new company when it needs to send the first letter), there's form contracts that cover trivial cases (up to 3 shareholders, even distribution of shares, ...) and in the simple cases, all fees and notary costs should be in the low 3 digits. Keep in mind that moving money in to and out of limited liability companies is not trivial, so you should have sufficient founding capital to cover the initial expected expenses.
If you don't need the protection of a limited liability company, you can always opt for just freelance status - that's a simple registration at the tax office or, if you're multiple people, form a GbR (either by contract or implicitly, but I would really recommend a written contract). You can then register the business online.
Can you not, as an owner or director, loan money to the company to cover initial expenses? In the UK it's common to run a Directors Loan Account.
With the DLA you can lend money to the company to start things up, or pay for things personally and claim expense from the company if that's simpler at first (even company formation fees can be claimed like this) which can then sit in the DLA, or use it to borrow (a limited amount) from the company for a short time to smooth over salary/dividend payment planning.
You have to be careful to account for each transaction between personal and company, but if you understand that it seems not especially complicated, and certainly doesn't need founding capital. With my recent company the founding capital was £1.
* a shareholder loan is treated like capital - it’s the last loan to receive payment if the company folds. Probably not a problem in most single person LLCs, it important to keep in mind when it happens. If you pay your own loan and default on another, that’s a crime.
* you cannot in general make up arbitrary terms. The loan must be made with terms that a third party would agree to (“wie unter fremden Dritten”). That means you should - even for your own company - have a contract in place.
Borrowing from the company is possible, but if you give yourself too favorable terms, this could end up being treated as a hidden payment (verdeckte Gewinnentnahme) and that’s tax fraud. Tax litigation has the uncomfortable rule that the burden of proof is reversed- you need to prove your books are in order. If you can’t, tax authorities win the money.
Same if you start paying yourself a salary, but end up not paying on a regular basis. It’s ok if it happens a few times, but a salary should be somewhat regular.
I’d say it’s generally easier to pony up a little cash to cover the initial expenses if you can. I don’t see too much benefit in not having at least some founding capital. You’ll have to come up with the money anyways and it’s not going to sit in the bank account unused.
It’s better to find other ways to make things smooth. For example you can be managing director without drawing a salary.
Just some data points from the UK, not disagreeing with the parent comment.
Lending to the company is useful as an alternative to posting a large amount of _initial_ share capital, which you might simply not have, or not want to declare at first. For example, if you have a main job, and you are starting a company for a side project (to give it clearer legal structure or other benefits of incorporation), and don't have savings to put in. Rather than wait until you've saved up, you might start the company with minimal share capital, then add project funding over time from your main job salary by way of directors loan rather than issuing more shares and all the complications that go with that.
In the UK it's simpler, especially for small, short term director loans:
- When lending to the company, the terms don't have to be those a third party would agree to. It's ok to be interest-free, or to charge interest. If charging it's personal income for the director and personally taxable as interest, and a taxable business expense to the company For a one-person, 100% owned company it will generally be favourable to not charge interest, as well as simpler to document. A drawn up contract is of course advisable, especially for loans with interest, to document what's going on especially for authorities, but it can be a simple one.
In one-person companies it's common to lend to the company as a side effect of other things, for example deferring an agreed salary payment, dividend, or sale of property into the company posted to the loan account instead of paid as cash.
- When borrowing from the company, below £10k and for a strictly limited timing relative to the company accounting year, a director can borrow interest-free without involving taxes (as long as it doesn't follow a pattern that would be deemed an advance on salary instead, then there would be tax/NI implications).
- Otherwise, if insufficient interest "hidden payment" can occur, which we call "benefit in kind", and it's dealt with legally by paying tax on an amount you or your accountant can calculate. Helpfully, an agreeable interest rate is formally specified by the tax authorities; if it's paid there's no benefit in kind to worry about anyway. There is no need to evaluate and document what a third party might agree to.
In practice, the smaller type is not uncommon, and can even occur by accident, for example if a director mistakenly pays for something personal on a company card, that's recorded as DLA until it's paid back or covered by something else.
I suspect financial literacy is low everywhere.
Source: had single member CA LLC and wasted $800/year for a few years on it.
No, it's not; both for federal and California tax purposes, a single-member LLC chooses whether to be taxed as a corporation (i.e., separately) or as a “disregarded entity” (directly on the owners taxes as for sole proprietorship of the single member is an individual, on the owners taxes as a corporate subsidiary or division if the single member is itself a corporation.)
> It won’t protect you from lawsuits
Yes, it does mean that, absent the conditions for piercing the veil which apply just as they would to any corporation, you are protected from liability for the liabilities of the company. That's the LL in LLC. If you properly observed the formalities of LLC operation, it does protect you.
> you’ll still have to provide personal guarantees on loans, etc.
Well, yeah, if you have a baby business that has no evidence of being credit worthy and no way to secure it's debts, it'll need some guarantee of payment before people will extend it credit. That's kid of obvious—why would someone extend credit to an entity with no demonstrated ability to pay with no one else on the hook?
Apparently the process of adding or removing partners is, at least in my state, very simple.
My dentist and I don't have much in common so we talk about things like this. Well, he talks, I kinda mumble, under the circumstances. Are LLCs normal for dentists in general or dentists in your state or dentists in my state? I donno, I should ask him next time.
I would imagine all sorts of small service businesses with multiple partners would benefit from this situation, ranging from lawn care to IT field service to law offices. I wonder how this situation interacts with long term inherited family businesses?
This sounds misinformed. The point of an LLC as far as I have always understood it is that if someone sues your company they cannot take your personal assets as collateral but only that which belongs to the company. If someone sues you, you can lose a crappy small LLC or would you rather lose your home as part of a settlement cause somebody is a monster.
Feel free to correct me if I am wrong on this or if this is a misconception.
The creditor wanting to pierce the veil is, unsurprisingly, not a sufficient legal condition for piercing the corporate veil, otherwise corporations and LLCs (not just California and not just single-member) would be worthless.
Of course, a sloppily-run LLC is more likely to result in piercing the veil, and a single member LLC that the owner views as a maintenance free magic shield is particularly likely to be sloppily run.
I'm not a lawyer, but this happened to my dad a couple of times in his life. The first time, he lost control of his business and had to declare bankruptcy. The second time, it was dismissed.
Edit: For those curious. Having "policies" written down and following those policies to the letter will save you if you are ever personally sued for something your business does.
It vastly reduces the expected value to them, and thus the incentive, and the expected cost (legal and liability) to you, but no, it's not an absolute shield.
> . You can try to claim "it was the business's fault" but if you're a single member LLC (with no employees) this is very difficult
Well, yes, but the problem with that isn't “single-member LLC” (for which the standard is pretty much the same as any other limited liability entity) but the “you’re” part: a key requirement of maintaining limited liability is that the entity is operated as a distinct thing from the principals. If you view yourself as not distinct from the LLC—that the LLC is something you are and not something you have or operate—that's a pretty good sign that you are thinking about it wrong from the start.
Very subtle catch. I meant “you have” but still, I wish I could give you more upvotes.
And unless you happen into some money tree-esque line of work it is going to be damn near impossible for a one person LLC to not do things that will get the veil pierced, especially in a business unfriendly regulatory environment where the small businesses are already spread thing by other requirements. The plumber who is unwilling to use his van as a personal vehicle and use his personal checking account as his slush fund is going to get out competed by the plumber who is. The vast majority of single person LLCs simply do not have the luxury of having enough cash on hand to separate things to the extent necessary to be protected.
If you don't have the ability to operate a distinct entity, you shouldn't choose the business form designed for that express purpose and offering benefits conditioned on doing so.
I don't know that the vast majority of single-individual LLCs are actually doing it wrong, though, especially in California where the required cost at least encourages some thought about what you are going to get out of it that justifies it.
My personal experience was that banks will start treating your LLC as an entity that isn’t an extension of you when you start getting up to a few million USD in revenue. Then you are likely to have assets like accounts receivable, signed contracts, inventory, etc. I may be wrong here, as I didn’t get to that level, but I remember conversations ending with “we can help you when you’re making 3 to 5 million.”
I'm not sure I'd pay that much for the benefits of an LLC in California, but I'd certainly pay $8 in NY or $0 in Texas.
- This depends what you are doing with your business. Doing some software consulting on the side and making 10-20k/year from that? You probably don't need it. You have to decide for yourself what your chances of getting sued fare, but for many people, they are zero to negligible. The chances of getting sued go up quite a bit once you start to employ people though.
- IANAL, but I get the impression that if you do everything right, then piercing that corporate veil isn't so simple. If you start treating the LLC like an extension of yourself, then you run a risk. So don't buy cars or vacations (or any non-business expenses) on the company if you want to maintain that separation. Also, don't commit fraud or other things where the court might find it unreasonable to let you hide behind a corporate veil (if you sell $100,000 in counterfeit prada purses to an unknowing buyer, and then take that money and transfer it from the LLC to yourself, the court probably won't look favorably on that). Also, make sure the company is well capitalized enough. If you open up an LLC and put $10,000 on the credit card without any reasonable expectation that you'd be able to pay that expense, and the court agrees, you might see the corporate veil pierced. But in general, if what you are running is an actual business, there's probably a fairly good chance that piercing the corporate veil will be hard (doesn't mean people can't sue you personally... the question is whether they will be successful in doing so).
- For some people, paying $800/year is worth it for having something that sounds more official. Telling a customer that you are Acme LLC sounds more official, which is worth something.
- I do some side consulting and live in a state where LLC fees are much lower (~130-ish/year). I don't really need the legal protections (the most my customers would reasonably do is ask for their money back, which I would probably do anyway if they were unhappy, rather than deal with a lawsuit). But I like having an LLC with it's own bank account and credit card for tax purposes. It gives me piece of mind that i have completely separate accounts for business expenditures that I can point to in case I were audited, even though my risks of audit are pretty low. That said, I probably wouldn't do it if I were paying $800/year.
> "A court will pierce the veil only if a failure to do so will result in an injustice. This requires more than evidence that a creditor will not get paid. It requires evidence that the corporation or LLC was used in some way to perpetrate a fraud or accomplish some other wrongful purpose. For example, if the shareholders or members formed the entity knowing that they were not providing enough start-up capital to satisfy its contractual obligations, or intentionally moved the company’s assets out of a known creditor’s reach so that the debt could not be paid.
Actions such as those may be considered by courts as abusing the corporate or LLC form. For example, an Alabama court pierced the veil of a solely owned corporation that was hired to do construction work on a house. The shareholder testified that the corporation had no money when the contract was made, that she made no attempt to make sure the corporation had enough money to complete the project, and that she and a friend used the corporation’s bank account – which consisted only of the funds from the plaintiff - for personal purchases at jewelry and sporting goods stores, car services, restaurants, and more."
I wonder if this is correct. Many places require you to deprecate assets such as computers over many years, so the deductions are not all taken out of your profit the year you buy them.
Sounds like this article is conflating the legalities of setting up a business with the accounting of operating one, two different things.
It's likely that in some accounting regimes you have to to this, but in my own experience with a small business in the US, multiple accountants have simply depreciated assets like our computers immediately. When I originally questioned this our CPA said we could depreciate it over several years but it wasn't necessary in our case (small enough [asset] value and lifetime) and not worth it.
As it stands I imagine if someone is spending $1,000 per year on "servers" these are non-depreciable cloud service expenses.
If you bought (and own) servers, you must depreciate and amortize them. These are capital expenditures, aka capex
If you rented servers (e.g. AWS, GCP), you deduct the entire cost when it is incurred (or realized, depending on the details). This is an operational expense, aka opex
the stimulus programs specifically included them and the SBA asked no questions
you do still want the liability protections, more disciplined separation of assets and accounting by having an incorporated name, and deterrent to people looking to sue, alongside additional levels of anonymity if you choose which can further deter potential creditors
they can also make elections to parallel regulatory or tax regimes, which you don't want to alter on your personal body. such as election 475 for active traders, converting capital gains and losses into ordinary income allowing for unlimited tax deductions on losses, instead of the default status for capital.
or setting up "blocker" corporations in other jurisdictions to help other people avoid onerous default tax regimes.
My thinking is - if you are engaged in an ongoing concern, especially if it is responsible for your livelihood, it makes so much sense to explore incorporation of some variety. This could be for no other reason than to split out business vs personal finances and records. As you explore various financing, tax, and legal scenarios though, the cost to form and keep an LLC (or then choose S-corp taxation...) make it completely worth the administrative overhead.
Second nature to me. Not that costly of a “hobby” and I’ve let them go delinquent temporarily if I have a disruption in income.
I’m often sitting down at a local bank branch opening a new account for one.
But I would also say consider Transferwise for business bank accounts. Super easy and you can get Euro SEPA region accounts for your US entities as well. (Without Transferwise update, this is actually hard for American citizens but it might not be something you ever encounter.)
I never do a local/“foreign” llc filing unless the state is fining me to do it.
Can’t really relate to the idea of debating to incorporate. I know the unknowns can be daunting but sole proprietorships are lazy.
A LLC just (hopefully) gains you liability protection and perhaps a bit more legitimacy, in return for a big fee in California.
Ask me how I know :)
Really? In the 2 states I've lived in, there is no annual fee for LLC's. I'm curious what the reasoning behind having a fee that large is.
But if you don't pay your LLC just goes defunct. Making it a mandatory fee you can't escape kind of flies in the face of the whole point of an llc
"To get people to move to Texas and create CA's regulatory environment there."
shows some 9 states with no annual fee.
The fee is just one small part of a litany of compliance hurdles. The purpose is to keep the small guy under the table so that he can be squashed like a bug (by a lawsuit and/or the gov itself) if he F's up.
I'm sure they have some grandiose "think of the children"-esque language they do to justify it but as someone who lives in a similar regulatory environment the practical effect is that businesses either start with lots of investment or they stay as under the table as they can possibly be.
 either capital investment, like a facility and fleet of trucks, or time investment in the status quo, for example by a white collar professional (like a PE, lawyer or accountant) spending years working under some other business and building a reputation before striking out on their own or a tradesmen getting a professional license that requires years in a field. Sometimes there's a hybrid approach where you do your 9-5 for someone who's already made the investment and do side gigs to build up a customer base and then at some point you "go legit" and start your own business.
 And they either stay small or try and slowly amass the capital to start an above the table business.
I forgot to file one year (still paid the $800 on time) and got hit with a $500 fine that there was no way around.
That LLC made -$1300 that year.
FYI -- You and your partner could have formed a general partnership, gotten a separate TIN from the FTB and IRS, and registered a ficticous business name with the county. When the company is ready to sell software, you can transition from a GP to an LLC. Your CPA should have told you this; get a better one next time.
Wait until January if you’re close to the end of the year and can afford to hold off.
Alternatively, if you are involved in a few startups with losses, it can add up really fast.
If you screw up the paperwork it will prevent you from raising money or work with others and kill your business. Honestly, I know it sucks to have to pay money that seems unrelated to your startup, but you'll pay it back many times over and have to set things up properly anyway
Look, if you're reading articles like this one, don't do it. Just don't do it. Get competent legal and accounting advice first.
I formed my LLC four years ago when an interesting contracting project came my way. I'd worked as a 1099/Schedule C contractor in the past, but this client wanted me to have an LLC. OK, no big deal.
Then it turned out they also required the LLC to be taxed as an S Corp. No big deal there either, it's a simple IRS form to make that election.
Now guess what? You have to start filing 1120S corporate taxes plus the California equivalent. All the LLC/S Corp income flows right through onto your personal tax return, but you also get to get to file 940 and 941 payroll tax forms and the state equivalents.
And whether your LLC is taxed as an S Corp or not, you have to pay the $800/year California minimum tax on it. Yes, even though the LLC/S Corp really has no net income of its own (as it all flows into your personal tax return), you will owe that $800/year. Even if you create your LLC in another state.
Do not try to do this yourself. You will get it wrong and will pay many thousands of dollars in penalties as I have.
I finally realized I would be much better off just working for another company and letting them deal with all these headaches. They have an entire team to deal with it! If I had a time machine, I would have stuck with regular employment instead of thinking of myself as an independent business.
Forget about the fabled "corporate veil". If the IRS and FTB decide they want their money, they are going to get it.
If you do think this still sounds like a good idea, you must use a payroll service to pay yourself. After my initial fiasco of trying to do it myself, I started using Gusto  and they are pretty great.
For filing the LLC itself, I used SunDoc Filings  and they are really good too. They helped me on very short notice when I made a mistake on my LLC filing that would have caused it to be rejected.
But really, think twice, or a dozen times, before you open this can of worms.
Sorry for all the italics. :-) But this is something where I have some painful experience, and if I can help steer people away from it I hope it will be helpful.
> Now guess what? You have to start filing 1120S corporate taxes plus the California equivalent. All the LLC/S Corp income flows right through onto your personal tax return, but you also get to get to file 940 and 941 payroll tax forms and the state equivalents.
This not true of all LLC's, just corporations. If you're forming a small LLC, especially a single member LLC, you can create a pass through entity that avoids all of the ceremony you're explaining. Mentioning all this makes it sound like it's obligatory to establish a corporation when you form an LLC, but that was only necessary in your specific case (probably for the company you were trying do business with to avoid AB5).
Looking back on this, if it had been just an LLC it would have been no big deal at all. It would be a "disregarded entity" with ordinary 1099/Schedule C income, no different from any of my previous clients, with an easy tax return like the ones I'd done many times before.
It was the S Corp election which this client required that really messed everything up.
In hindsight, this truly was the proverbial "client from hell". It was an interesting project, albeit quite an experimental one. I got paid for only a week of work after spending a full month on it, and then I got the ongoing heartache of the S Corp nonsense to boot.
Thanks for pointing out the distinction between the LLC and the S Corp.
Despite this, I wouldn't let it sour your view of self-employed work. I was an independent contractor for 6 years and then started a more formal business after. The freedom of picking where, when and how you work, who you work with, how much you'll charge, and most rewarding of all, building and owning your own thing, can be very fulfilling. Maybe you had other reasons to desire employment again, this is certainly not for everyone, but if it's all interesting to you, it's worth it just for the personal growth.
The 1040 instructions are maddening but nigh-complete. A thoughtful person with enough time on their hands has a prayer of figuring out even relatively subtle tax issues.
The 1120S instructions as recently as ~2015, on the other hand, feel like vague guidance. If the phrase, "Write down your income, write down your expenses, now write down your tax. Sign that you have made no mistakes under penalty of law." makes you nervous, consider expert advice or an arrangement that avoids forming an S-corp.
The state forms are generally dependent upon the federal ones, so if you make an error on the federal form, the error will flow through to the state (which may have similarly vague instructions).
If I ever need to form another corporation, I will absolutely seek professional advice and hand off the filing to a trusted CPA. @Stratoscope is doing the right thing in using plenty of italics.
It only gets complicated of you want to make it complicated.
Take your business expense items, and add those up.
Subtract expense from income. Done...
Personal income tax is much more complicated than small business income tax. Large corporations and partnerships are more complicated than small businesses, but those types of businesses want the additional complexity.
I did it myself and got it right? I closed my LLC last year, not for reasons related to managing the LLC itself.
It's not "hard". It just requires a lot of knowledge of process and filings required. Most folks are best using a CPA to handle it.
It is absolutely best to contract under an LLC or S Corp umbrella, vs personally. You need the liability protection. Perhaps not as much for software, I suppose. But if an average plumber / salon owner / painter / tradesman can get it right, so can you.
> you must use a payroll service to pay yourself.
you don't need to. it's way easier to do the payroll taxes, so you absolutely should, but it's not a hard requirement.
but you don't need to be on the payroll at all. you can take a draw, or take distributions instead. there are tradeoffs for all 3 methods.
> Forget about the fabled "corporate veil". If the IRS and FTB decide they want their money, they are going to get it.
The corporate veil isn't about taxes, at all.
The idea was that the LLC/S Corp would give my client some protection against anyone claiming that the client would owe employment taxes on what they paid me. So I had to be my own corporation paying myself through a payroll service, to make sure the state and the feds would get their cut.
Put more simply:
"Nice business you've got there. Be a shame if something happened to it."
That's not how CA contractor classification law works, nor how the law has ever worked in the past.
It’s almost as though that is all by design, put in place by state legislators who are owned by big corporations that want to keep their primary labor pools enslaved under the W2 regime.
I think all the labor / socialist parties may have gotten it wrong - the worker’s revolution would never be realized through labor unions etc, but rather by organizing incorporation and all the benefits it confers upon the individual. Let every man, woman and child be their own corporation. Wouldn’t that be a different form of capitalism to behold.
If you can't handle a little bit of paperwork you have no business trying to run a company.
The actual corporation or LLC being formed, however, cannot name itself as its own Registered Agent.
I formed an S corp for my personal protects for tax reasons. I also used legalzoom, because it's good enough for most small businesses. (And even big ones; Panda Express is an S corp.)
> if you form your small business as an SMLLC, and observe a few basic rules (such as keeping business finances separate from personal finances), you should be personally protected from most kinds of business liability
Single-member LLCs which are run properly still get liability protection.
Courts in a variety of states have “pierced the veil” of a single-member LLC from the outside and have held that it is not a separate entity and thus may not be used to protect the assets of the LLC from the creditors of the member.
You get liability protection, yes, but not as much as you would if you had one more member. The veil can be pierced for various reasons, so to reduce risk you want to minimize those reasons as much as possible.
These examples of piercing the veil are from the other direction - a personal suit getting access to the LLC assets... Which sort of makes sense - the alternative would be the court ordering the seizure of my assets - which would be my ownership stake in the LLC. So in their example, I'd still expect to lose my ownership stake in my LLC by asset seizure even if I was in a multi-owner LLC... Or had stock in an S-corp.
Your example is what most people think of - LLC's shielding each other and the owners.
I'm mostly pointing out that the parent comment's link is a bit of a boogeyman in that you could have a perfectly structured LLC system, and if you are personally criminally negligent and liable to pay, then the courts will still get your stakes in the LLC's.
In case of an LLC taxed as a partnership the creditor will need to pay the taxes as stated on the K1 but doesn’t receive actual money. Obviously this will make it very unattractive to the creditor to go for a charging order on your membership in the first place.
I live in SC, and you don't even have to inform the state that you formed an LLC. If you do want to, its about $100 and takes another online form.
The idea that you would need a lawyer is absurd.
Basically the goal is to force businesses to choose between heavily buying into the status quo or giving government power of arbitrary enforcement over them. The licensed plumbers don't want all the journeymen who haven't spent years getting a license but can install a toilet just as well undercutting them and stealing their gravy business. By imposing regulatory hurdles at every step of the way you keep those "I'm not quite big enough to go 100% above the table" businesses under the table you keep them on the down low and you keep them from affecting regulatory change. By the time those journeymen plumbers have licenses of their own and can be 100% above the table they feel entitled to the gravy and don't want to change anything. (I only picked plumbing because it's a good example in my state, there's plenty of others).
California law is convoluted and Californian courts slow. That makes doing almost everything with a California LLC more expensive than with a Delaware LLC.
The only reason to form a California entity is if you’re doing business with the state.
In a revenue sense, e.g. if you are contracting with the state. Paying California taxes is about equally easy for a California resident, New York resident or Delaware entity.
Or if you’re operating a small business unlikely to ever need to use the courts or raise outside capital, and the extra ~$300 for a Delaware entity isn’t worth the benefits.
Paul is a California resident and a member of a Nevada LLC. The Nevada LLC owns property in Nevada. The LLC hires a Nevada management company to collect rents and provide maintenance. Paul has the right to hire and fire the management company. He occasionally has telephone discussions from California with the management company in Nevada regarding the property. He is ultimately responsible for the property and oversees the management company. Paul conducts business in California on behalf of the LLC. The LLC must file Form 568.
I assume you'd need a US-based partner in the LLC.
But if you're not a US-citizen and want to create a company in the US, I would highly recommend NOT forming it in California, for cost/paperwork reasons. There are many other US states that are much more business-friendly to choose from.
Stop giving legal advice.
Billing clients in California can create a nexus but it depends on the amount of sales. A company is considered doing business and subject to California tax laws if state sales or property exceed the following amounts:
* CA sales of $601,967 or 25% of total sales.
* CA real and tangible personal property worth $60,197 or 25% of total property.
Also, if a company engages in any transaction for the purpose of financial gain within California, the Franchise Tax Board considers that doing business within the state. An example would be meeting potential clients during a professional conference and negotiating a sale. This can be done by either a member of the LLC, an employee, or an agent such as an independent contractor.
I'm torn on whether or not to use Axos
No relation, just a happy user. Founder lurks on here, answered some questions in a thread, that’s how I found them.
But seriously, if you want to cheat California, just leave and move to a more business-friendly state and do your business legally. It's 100% not worth it to operate illegally in California, especially for the registration of an entity that's intended to protect you legally.
Oh, also fun, don't forget to explicitly close out your CA business when you finally give up and move out. If you don't, they'll hunt you down for your $800/yr several years later with penalties and interest.
CA is an expensive place in many ways. Basing your business operations there is only one of them.
North Dakota charges $100 then $25 for each annual report. Odd, ND is more expensive.