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About The Author
Stephen L. Nelson CPA teaches LLC and S corporation tax classes at Golden Gate University and is the founder of do-it-yourself kits for California limited liability company formation, accessible at , and for
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Are you an investor or entrepreneur setting up a limited liability company for a California venture? Your determination probably makes nice sense. An LLC reduces your legal risks and (routinely) minimizes income and payroll tax expenses. But be thoughtful,[link widoczny dla zalogowanych]! You want to avert 3 mutual incorporation boo-boos:
Mistake #1: Ignoring the Franchise Tax
Limited liability companies deliver big benefits in terms of minimizing valid and business risks and in terms of grinding down your business taxes.
By owning a business or investment indirectly through an LLC, you build a barrier among your private finances and those of the business--and you won't be liable for the business's debts solely because of your ownership.
Furthermore, if you own a business or investment via an LLC, you get some surprising tax accounting flexibility--including the option to have your limited liability company treated for tax intentions as know next to nothing of whatever you want: a sole proprietorship (if there's an individual employer),[link widoczny dla zalogowanych], a partnership, one S enterprise, and so forth.
Unfortunately,[link widoczny dla zalogowanych], the state of California (rather uniquely within states) reduces the attractiveness of the LLC option. The state levies an annual LLC tax ashore limited liability companies. At a minimum, this tax equals $800, merely the hit works up based above the business's earnings mushrooms.
The $800 year franchise tax is pretty premonitory fall butme small (primarily part-time) businesses. Verify, accordingly, that limited liability company formation is even economically justified.
Most small-scale ventures and sideline affairs really can't supply paying $800 or more as the avails a restricted obligation company serves up.
Mistake #2: Forgetting About Understaffed State Government Offices
Another mistake related to incorporating in California cares the preposterous processing periods required by the Secretary of State. Unfortunately, long delays screw around with your business start-up activities--and absence to be acknowledged in your arranging.
In mid-to-late 2010, case in point, the California Secretary of State says that processing the treatises of union for a limited liability company requires roughly sixty days. That's really pretty brutal: If you want to operate your business as an LLC, you'll going to have to await virtually 2 months fair to get the business or investment entity setup.
Mistake #3: Using a Nevada Corporation or LLC
One other mistake you won't absence to make namely using a Nevada corporation or Nevada LLC.
With the heavy hassle-factor of incorporating California limited liability corporation,[link widoczny dla zalogowanych], you might marvel if you tin just go next-door to Nevada.
Another state's fees and taxes are almost forever going to be lower than California's. And numerous states speedily process business formation documents because they accomplish that doing so benefits everyone.
But practically speaking,[link widoczny dla zalogowanych],[link widoczny dla zalogowanych], you can't simply "opt" for incorporating in different state. If you're operating your business or production an investment in California, you either need to use a California LLC or corporation... or if you've initially install up a corporation in distinct state (like Nevada) you'll need to enroll your Nevada thing as a alien corporation or alien LLC operating in California.
Registering a "foreign LLC" or "foreign corporation" in California, however, puts you right behind at square one: Registration of the foreign corporation takes months and triggers the annual franchise fees and taxes.