4 ms·

> paying the filing fees (in California $800 per year) Wow, that seems super high. So if I was running a side project in California I might be stuck deciding

> paying the filing fees (in California $800 per year) Wow, that seems super high. So if I was running a side project in California I might be stuck deciding between wasting 10% or more of my income on fees or putting my personal assets at risk in a sole proprietorship? Since you mention you are a lawyer, can you comment at all on the limits (if any) of liability protection with an LLC. Is a single-person LLC going to be a solid shield over my personal assets, or are there still possible risks? Edit: It looks like the fees to maintain an LLC in my locality would be less than 5% of the $800 fee mentioned for California. Does California just not like small businesses?

ChuckMcM 10y ago
I think California just likes taxing businesses.
- mikeryan 10y ago
  To be fair California likes taxing everything ;-)
chias 10y ago
If it's an internet thing you can incorporate wherever you like. I live in Texas but filed in Wyoming because (a) the forms were super easy, and (b) IIRC the filing fee was $150 and that includes a registered agent.
- Cerium 10y ago
  This does not apply to California residents. In California you must pay $800 minimum to the state per year if you have a business nexus in the state.
  - chias 10y ago
    How is "business nexus" defined? IANAL, but if your project is purely a website, isn't the residence of you as the person pushing code irrelevant?
    - Cerium 10y ago
      California defines nexus broadly: Maintaining, occupying or using any type of office, sales room, warehouse or other place of business in California. This includes use that is temporary, indirect or through an agent or other representative. Having any kind of representative operating in the state for the purpose of taking orders, making sales or deliveries, installing, or assembling tangible personal property.
      - chias 10y ago
        I suppose wherever your computer happens to be might count as a temporary office of some sort? Wow, that's brutal.
will_brown 10y ago
>can you comment at all on the limits (if any) of liability protection with an LLC. Is a single-person LLC going to be a solid shield over my personal assets, or are there still possible risks? Think of liability as a 2 way street. 1. Someone suing your LLC and trying to collect against you/your assets personally. Generally this is the type of protection you will receive with an LLC (single or multi member) barring any exceptions, such as piercing the corporate veil in which case the plaintiff might go thru your LLC protection and reach your personal assets to collect. 2. Suing you and trying to get to your LLC. This is the direction the single member LLC might not offer protections. Imagine a scenario where you are personally sued and you don't have personal assets to cover the judgement. Say if you owned 1 share of Apple, obviously they can't collect against Apple just because you are an owner, and the same protection will typically exist with a multi-member LLC. However, in the case of a single member LLC in these types of cases the courts will likely allow the plaintiff to collect against LLC and/or even foreclose on your LLC company/assets if need be. >Does California just not like small businesses? CA likes revenue and as high as the fee is, small businesses will pay because they don't have options (they could incorporate in CA as opposed to organizing an LLC or moving states). One possible hack is create LLC #1 in another state, qualify it as a foreign LLC to do business in California, and and the end of the year repeat the process with LLC #2 and transfer all assets from LLC #1 to LLC #2. The only reason someone might not recommend this route is because people prefer continuity of a business, but that shouldn't really be an issue when the main goal is liability protection from side projects. Edit: dissolve and file final tax return
- jalonso510 10y ago
  This hack is not a good idea. In most states you have to pay that year's franchise tax (the $800 in CA) before you are allowed to dissolve the company or surrender your qualification, and there are also filing fees for each of these things so you will never save money doing this way and will instead pile up more fees. In general legal and tax is not the place where you want to be trying to innovate.
  - will_brown 10y ago
    >In most states you have to pay that year's franchise tax (the $800 in CA) before you are allowed to dissolve the company or surrender your qualification, and there are also filing fees for each of these things... Actually you would not have to pay the CA $800 franchise tax so long as you dissolve/cancel the qualification before the yearly due date and there is no separate filing fee to cancel the foreign LLC qualification in CA. The only time the $800 fee would need to be paid is if the business was not dissolved/cancelled before the annual due date, then the $800 would need to be paid before CA would accept dissolution and CA will come after the franchise tax + penalties. >In general legal and tax is not the place where you want to be trying to innovate. Its not "innovation" its practice. And after you have formed thousands of businesses for people you can identify the best solution for their needs. I wouldn't recommend the "hack" for most businesses, but under a very specific set of facts where the LLC is just for liability protection and the CA $800 franchise tax is prohibitive, there are ways to do it at the trade off of continuity of the business, and this is one of the rare instance continuity might count for nothing.
stonemetal 10y ago
Not a Lawyer, but my understanding is that a single person LLC is a waste of time. When something happened and you were going to be sued they would sue you as a person and you as a business. Protection really starts once you have an employee or cofounder. As a hypothetical: A domino's pizza driver causes a wreck, the victim sues the driver, and domino's pizza. The only entity protected in that case is the uninvolved individual domino's share holder. As the only actor you would never be the uninvolved share holder, you would always be the delivery driver directly involved in the accident. Therefore you always have direct culpability that can't be hidden by the LLC.
- Grishnakh 10y ago
  Not a lawyer or accountant either, but my understanding is that a single-person LLC is only useful if you're holding business debt: if your company goes bankrupt, your personal assets are much harder to go after. For liability, you're exactly right: you can't pass off liability to a piece of paper when you're the only person in the company. I get flak for this whenever this discussion comes up, but personally I have a side project business, and it's a sole proprietorship. I looked into incorporation but could not find a single positive attribute to it, for my situation. My situation is: 1) I'm the only person, and 2) I have zero debt involved with the business. So for me, there just isn't any good reason to incorporate; it would only increase my costs and force me to waste a bunch of time on extra paperwork for nothing. All these people touting incorporation seem to have several assumptions, one being that you must necessarily go into debt to start a business (not true), and the other being that surely you must have employees or partners (also not true). Just look at some guy who starts a lawn-mowing business: if he buys his own mower out-of-pocket, and does all the work himself, what the heck does he need a corporation or LLC for?
Spooky23 10y ago
Try New York... a friend got tied up in a regulatory nightmare when he failed to renew his milk dealer's permit when he bought a gas station. He doubled the sin by selling milk from a farmer down the road without being bonded! Check out the application: http://www.agriculture.ny.gov/DI/PDF%20WebDocs/NYMilkDealerApp.pdf http://www.agriculture.ny.gov/DI/PDF%20WebDocs/NYMilkDealerA...

ChuckMcM 10y ago

I think California just likes taxing businesses.

mikeryan 10y ago
To be fair California likes taxing everything ;-)

chias 10y ago

If it's an internet thing you can incorporate wherever you like. I live in Texas but filed in Wyoming because (a) the forms were super easy, and (b) IIRC the filing fee was $150 and that includes a registered agent.

Cerium 10y ago
This does not apply to California residents. In California you must pay $800 minimum to the state per year if you have a business nexus in the state.
- chias 10y ago
  How is "business nexus" defined? IANAL, but if your project is purely a website, isn't the residence of you as the person pushing code irrelevant?
  - Cerium 10y ago
    California defines nexus broadly: Maintaining, occupying or using any type of office, sales room, warehouse or other place of business in California. This includes use that is temporary, indirect or through an agent or other representative. Having any kind of representative operating in the state for the purpose of taking orders, making sales or deliveries, installing, or assembling tangible personal property.
    - chias 10y ago
      I suppose wherever your computer happens to be might count as a temporary office of some sort? Wow, that's brutal.

will_brown 10y ago

>can you comment at all on the limits (if any) of liability protection with an LLC. Is a single-person LLC going to be a solid shield over my personal assets, or are there still possible risks? Think of liability as a 2 way street. 1. Someone suing your LLC and trying to collect against you/your assets personally. Generally this is the type of protection you will receive with an LLC (single or multi member) barring any exceptions, such as piercing the corporate veil in which case the plaintiff might go thru your LLC protection and reach your personal assets to collect. 2. Suing you and trying to get to your LLC. This is the direction the single member LLC might not offer protections. Imagine a scenario where you are personally sued and you don't have personal assets to cover the judgement. Say if you owned 1 share of Apple, obviously they can't collect against Apple just because you are an owner, and the same protection will typically exist with a multi-member LLC. However, in the case of a single member LLC in these types of cases the courts will likely allow the plaintiff to collect against LLC and/or even foreclose on your LLC company/assets if need be. >Does California just not like small businesses? CA likes revenue and as high as the fee is, small businesses will pay because they don't have options (they could incorporate in CA as opposed to organizing an LLC or moving states). One possible hack is create LLC #1 in another state, qualify it as a foreign LLC to do business in California, and and the end of the year repeat the process with LLC #2 and transfer all assets from LLC #1 to LLC #2. The only reason someone might not recommend this route is because people prefer continuity of a business, but that shouldn't really be an issue when the main goal is liability protection from side projects. Edit: dissolve and file final tax return

jalonso510 10y ago
This hack is not a good idea. In most states you have to pay that year's franchise tax (the $800 in CA) before you are allowed to dissolve the company or surrender your qualification, and there are also filing fees for each of these things so you will never save money doing this way and will instead pile up more fees. In general legal and tax is not the place where you want to be trying to innovate.
- will_brown 10y ago
  >In most states you have to pay that year's franchise tax (the $800 in CA) before you are allowed to dissolve the company or surrender your qualification, and there are also filing fees for each of these things... Actually you would not have to pay the CA $800 franchise tax so long as you dissolve/cancel the qualification before the yearly due date and there is no separate filing fee to cancel the foreign LLC qualification in CA. The only time the $800 fee would need to be paid is if the business was not dissolved/cancelled before the annual due date, then the $800 would need to be paid before CA would accept dissolution and CA will come after the franchise tax + penalties. >In general legal and tax is not the place where you want to be trying to innovate. Its not "innovation" its practice. And after you have formed thousands of businesses for people you can identify the best solution for their needs. I wouldn't recommend the "hack" for most businesses, but under a very specific set of facts where the LLC is just for liability protection and the CA $800 franchise tax is prohibitive, there are ways to do it at the trade off of continuity of the business, and this is one of the rare instance continuity might count for nothing.

stonemetal 10y ago

Not a Lawyer, but my understanding is that a single person LLC is a waste of time. When something happened and you were going to be sued they would sue you as a person and you as a business. Protection really starts once you have an employee or cofounder. As a hypothetical: A domino's pizza driver causes a wreck, the victim sues the driver, and domino's pizza. The only entity protected in that case is the uninvolved individual domino's share holder. As the only actor you would never be the uninvolved share holder, you would always be the delivery driver directly involved in the accident. Therefore you always have direct culpability that can't be hidden by the LLC.

Grishnakh 10y ago
Not a lawyer or accountant either, but my understanding is that a single-person LLC is only useful if you're holding business debt: if your company goes bankrupt, your personal assets are much harder to go after. For liability, you're exactly right: you can't pass off liability to a piece of paper when you're the only person in the company. I get flak for this whenever this discussion comes up, but personally I have a side project business, and it's a sole proprietorship. I looked into incorporation but could not find a single positive attribute to it, for my situation. My situation is: 1) I'm the only person, and 2) I have zero debt involved with the business. So for me, there just isn't any good reason to incorporate; it would only increase my costs and force me to waste a bunch of time on extra paperwork for nothing. All these people touting incorporation seem to have several assumptions, one being that you must necessarily go into debt to start a business (not true), and the other being that surely you must have employees or partners (also not true). Just look at some guy who starts a lawn-mowing business: if he buys his own mower out-of-pocket, and does all the work himself, what the heck does he need a corporation or LLC for?

Spooky23 10y ago

Try New York... a friend got tied up in a regulatory nightmare when he failed to renew his milk dealer's permit when he bought a gas station. He doubled the sin by selling milk from a farmer down the road without being bonded! Check out the application: http://www.agriculture.ny.gov/DI/PDF%20WebDocs/NYMilkDealerApp.pdf http://www.agriculture.ny.gov/DI/PDF%20WebDocs/NYMilkDealerA...