19 ms·

Form a California LLC in 10 minutes for $70

494 points by mmckelvy 9y ago

aphextron 9y ago
Can anyone explain the pros/cons of LLC vs. a Delaware C corp?
- JumpCrisscross 9y ago
  > LLC vs. a Delaware C corp? Both Delaware and California offer LLCs, as well as incorporation options. Are you contrasting an LLC versus a C Corp, or a Delaware LLC with a California LLC?
  - aphextron 9y ago
    >Are you contrasting an LLC versus a C Corp, or a Delaware LLC with a California LLC? A Delaware C corp vs. a California LLC
    - JumpCrisscross 9y ago
      See http://www.calstartuplawfirm.com/business-lawyer-blog/california-vs-delaware-incorporation.php http://www.calstartuplawfirm.com/business-lawyer-blog/califo.... TL; DR If you’re raising outside financing, Delaware. Otherwise, California is probably fine. (Assuming you have a nexus in California.) Disclaimer: I am not a lawyer. This is not legal advice. Don’t make these decisions without a lawyer.
      - deleted 9y ago
        [deleted]
      - pandasun 9y ago
        What about a California C Corp LLC in Delaware?
        JumpCrisscross 9y ago
        > California C Corp LLC in Delaware I don’t understand. “C Corp LLC” doesn’t make sense; you can’t be both.
        zrail 9y ago
        Sure can. An LLC can elect to be treated as a C corporation for tax purposes with a very simple IRS form.
        JumpCrisscross 9y ago
        > An LLC can elect to be treated as a C corporation for tax purposes Still an LLC. We’re talking about entity formation and comparing jurisdictions; being legally precise becomes important in this context. Disclaimer: I am not a lawyer. This is not legal advice.
        gamblor956 9y ago
        Still an LLC. We’re talking about entity formation and comparing jurisdictions; being legally precise becomes important in this context. Right. It's still an LLC, for specific state legal purposes. And it's generally a C-corporation for tax purposes, federal and international law.
        JumpCrisscross 9y ago
        > it's generally a C-corporation for tax purposes, federal and international law A single-member LLC electing to be taxed as a corporation will still be sued as an LLC (i.e. it can be pierced more like an LLC and less like a corporation), dissolved and maintained as an LLC and enter into contracts, open bank and brokerage accounts as an LLC, and have the same difficulties raising outside capital as an LLC. Disclaimer: I am not a lawyer. This is not legal advice.
- mmckelvy 9y ago
  I break down the differences among entities in another post from the same blog: https://blog.bookandledger.com/topics/business-formation/intro-to-forming-a-business https://blog.bookandledger.com/topics/business-formation/int...
- jalonso510 9y ago
  For a traditional startup, that will (i) raise money from investors or (ii) give equity to employees, you should just be a Delaware c-corporation. Those are streamlined, known, and easy processes with a Delaware corporation. Every lawyer in this space has forms for that and can read those documents with a baseline of familiarity. If you try to innovate here and set up a startup as an LLC or a California corporation, you are complicating every corporate transaction you'll do and adding cost to every interaction with your lawyer and the counterparty's lawyer. And you will prohibit investment from certain VCs who aren't able to invest in pass-thru entities because some of their LPs manage retirement money and are subject to ERISA. There are other businesses where an LLC makes sense, including possibly for a bootstrapped startup that will have one stockholder for its whole existence. But that's not my area. Not even going to include a disclaimer about this not being legal advice, because I am a lawyer and this is good advice :)
  - mmckelvy 9y ago
    I would just add that tax classification and the liability protection entity are two different things. You can form an LLC and elect to be taxed as a C Corp. The upside is most states have fewer admin requirements for LLCs (e.g. you don't have to keep minutes, name officers, etc.) As for Delaware vs. your home state (CA in this case), I think it depends on the business. If you are a multi-national corp, sure go with Delaware. But if you live in CA, the other owners live in CA, and you're mostly doing business in CA, I'm not sure you'd need a Delaware corp. Delaware has franchise taxes of its own, so you'll end up paying taxes and fees in two states because you'll have to register as a foreign corp in your home state (CA).
    - jalonso510 9y ago
      No dispute from me that you can save a little bit on taxes by forming a California corporation if you're in California. Specifically the ~$400 of Delaware franchise taxes. But my point is that any company doing typical startup activities will spend more than $400 extra the first time they interact with their lawyer, an investor's lawyer or the state of California. For example - this week I'm helping someone with a simple filing in California, and the processing time is 10-12 days, unless we pay California an extra $350 expedite fee, whereas Delaware will turn the same filing around in 2-3 days with no expedite fee. Or, for another one - in California you can't submit an electronically signed document for a filing, so you and your lawyer get to spend the extra billable time dealing with scanning PDFs instead of DocuSign. And you get to deal with the lottery of attorney reviewers who will sometimes reject Articles of Incorporation over things that have been OK in every other document you've ever filed. And this is all separate from the fact that the lawyers on both sides of your transaction are secretly scratching their heads while they dust off their copy of the California Corporations Code and billing your for the time they spend figuring out what's different from Delaware. It's just not worth it for the $400.
- gamblor956 9y ago
  I would never advise someone to setup a Delaware C corporation unless they were very narrowly focused on raising VC funding, going public in the near term, or creating a subsidiary of a large, profitable company that uses the corporate structure. A C-corporation is the least tax-efficient and least capital-efficient structure, and you don't even get the benefit of limited liability over the LLC form because LLCs also get limited liability.
tardo99 9y ago
The $800 annual tax is worth people knowing about.
- chrisfinne 9y ago
  This should be top comment! I gave up the LLC protection after a couple years of this price gouging.
- asdsa5325 9y ago
  This. Forming a company in CA is stupid, no other state has this insane tax.
  - gamblor956 9y ago
    Most states have minimum franchise taxes. CA charges on the higher side because CA offers the biggest market. In effect, CA is taking advantage of the libertarian free market principle of supply and demand. They have the largest supply of potential customers, and there is a large demand of businesses wanting access to those customers, and the minimum franchise fee reflects that. You're free to set up shop in South Dakota (no minimum) and see just how many customers you find there...
    - asdsa5325 9y ago
      You can incorporate in any state, it doesn't matter where your customers are. Most CA companies (and most companies, across all states) form in Delaware for legal reasons. CA is not a popular place to incorporate in.
      - s73v3r_ 9y ago
        But if they're located in CA, which many of them are, they still have to pay the $800.
- nlh 9y ago
  FYI (and standard IANAL/IANACPA stuff too): If you do business in CA, which is to say you earn revenue in CA (and file a corporate/partnership tax return in CA), you’re paying the $800 annual fee regardless. So even if you form a Delaware LLC or Delaware C-Corp or Florida LLC and you earn money in CA, you’re paying the franchise tax.
giancarlostoro 9y ago
You can also do it in Florida entirely online but for $130. Wonder why the huge difference in cost. More info: http://dos.myflorida.com/sunbiz/start-business/ http://dos.myflorida.com/sunbiz/start-business/ To actually create one: https://efile.sunbiz.org/llc_file.html https://efile.sunbiz.org/llc_file.html
- kkielhofner 9y ago
  Florida has no state income tax on individuals. I don't have any data to back it up but it seems that states with lower income tax receipts usually attempt to make up some of the revenue by charging higher rates for various other government services that aren't immediately visible to most of the voting/tax base.
- bubbleRefuge 9y ago
  Also Florida requires and annual filing and associated fee of $200 I believe.
  - thaumasiotes 9y ago
    $130 up front and $200 a year beats the heck out of $70 up front and $800 a year.
    - gamblor956 9y ago
      If you do business in California with a FL-registered LLC, all that you have accomplished is that you now pay $130 to Florida once to register plus $200/year, then another $20+ to CA to register as a foreign LLC plus $800/year.
      - twoodfin 9y ago
        What does “do business in California” mean? If my LLC opens up a shop on Etsy and I ship to California customers am I supposed to register as a foreign LLC and pay $800/year? If so, that’s nuts and we need some beefier Commerce Clause jurisprudence.
floatingatoll 9y ago
This is an incredibly misleading title. They charge you $70 in filing fees, yes - and then over $800/year in annual LLC fees.
- jeffreyrogers 9y ago
  How is it misleading? It costs $70 to form the LLC, just like the title says.
  - asdsa5325 9y ago
    Because your newly formed LLC will disappear if you don't pay $800 more? My Ferrari costs only $1! Well, it also costs $2000/mo, but let's just ignore that.
- ryandrake 9y ago
  Yep, a buddy and I kicked around the idea of doing a startup and we thought it would be best to do it right by writing up a simple operating agreement and officially registering with the state. Several months later we realized we didn’t have a realistic plan and decided against continuing. We still owed that tax though! That $800 (and additional $400 to an accountant to make sure we didn’t screw up any paperwork around CA taxes) was far and away our largest “business expense”. We might as well have lit it on fire—what a waste.
  - newman8r 9y ago
    I've done the same thing multiple times. My current preference is to validate a concept before forming an LLC, and preferably before even looking for a partner.
  - gamblor956 9y ago
    $800 is a lot of money for someone pretending at business but it's a trivial cost for a real business actually earning money. And that's the point. It's a filter to weed out those that can't afford $800/year or aren't serious enough about their business activities to put up with the expense.
legohorizons 9y ago
Hey Mark - who do this in CA and not in DE? Also, a lot of students I know would be interested in learning more about bookandledger - do you have 40 minutes to give a talk about the new co. and your past experiences?
philfrasty 9y ago
Expanding on this: can someone recommend resources (books/videos/articles/etc) on holding structures (interested in US and Europe)? This is such a scammy industry and Googling only brings you so far. To clarify: I DO NOT want to evade taxes, just separate operational risk.
- JumpCrisscross 9y ago
  > can someone recommend resources (books/videos/articles/etc) on holding structures (interested in US and Europe)? Get a bottle of Scotch, clear a week-end and grab an annotated copy of Delaware’s General Corporation Law [1]. Read it. Book two hours with a top-tier lawyer. Ask them questions. DE law will give you an overview with which to ask the right questions for across the U.S. Pedantic overkill? Yes. Satisfying if you’re the right personality type? Absolutely. (Caveat: the law is complex and unforgiving. Use this to ask a lawyer good questions versus pretending to be a lawyer yourself.) [1] https://store.lexisnexis.com/products/delaware-corporation-laws-annotated-skuusSku6622 https://store.lexisnexis.com/products/delaware-corporation-l... Disclaimer: I am not a lawyer. This is not legal advice. Do not form a legal entity without speaking to a lawyer.
  - briandear 9y ago
    A side note, has anyone actually ever sued anyone for not having a disclaimer? It seems a lot like don’t use a hair dryer in the shower. “I am suing because some dude on Hacker News suggested..”
    - JumpCrisscross 9y ago
      It’s more so someone doesn’t think I’m a lawyer, follow my Internet commentary and then come to harm themselves. The disclaimer is my way of saying “I am speaking beyond my circle of competence, but still think what I have to say is interesting.”
  - lsiebert 9y ago
    How does the annotated copy differ from that provided by delaware itself, (other than cost)? https://corp.delaware.gov/DElaw.shtml https://corp.delaware.gov/DElaw.shtml
will_brown 9y ago
Maybe I’m biased but, this is one of those times where the advice is just enough to get you into trouble. No mention of single member vs multi-member LLC, and lack of certain liability protections with single member LLCs. Most people will have expectation of liability protection, and those single member LLCs may be surprised to find the assets of their single member LLC at risk for their personal liabilities. No mention of tax treatment, by default single member LLC is pass through (no need to file separate federal return), but can elect to be taxed as a Corporation or S-Corporation. No mention multi-member is taxed by default as a partnership but can elect tax treatment as Corporation or S-Corporation. No mention of an Operating Agreement, which is the controlling document; therefore, without one the LLC is governed by California Code. These issues are of great importance, example: you may have a partner and the death of the partner may result in dissolution of the LLC or maybe having a new, unwanted partner(s) (spouse and/or heirs of the deceased partner), but without the operating agreement California Law will dictate.
- mmckelvy 9y ago
  Yeah this article is meant as a simple how-to for someone that has already decided they want to form an LLC in California and understand the pros and cons. I cover some of the issues you cite in another post: https://blog.bookandledger.com/topics/business-formation/intro-to-forming-a-business https://blog.bookandledger.com/topics/business-formation/int...
  - jiveturkey 9y ago
    Yeah the original article is almost worthless. The 2nd article you just linked is much better, and usefully informative. However, it still needs: - info about the need for an operating agreement - more detail about piercing the corporate veil - discussion of FTB and IRS reclassifying as hobby business You are advertising to a very technical audience and should address these things at a deep level.
    - theptip 9y ago
      I strongly disagree with "almost worthless"; assuming you've made the decision to form a CA LLC, this post is very useful. You're making some quite strident demands of some random person on the internet here ;) Having said that, I too would be interested in the extra topics that you listed, particularly the operating agreement piece. I looked into this recently and NoLo offers a $100-300 service [1] which comes with options, vs. free Operating Agreements like this random one on UpCounsel[2]. I have no idea what the parameters are on this, and in the past I've just leant on a lawyer friend to do this for me; I'd like to understand the details. [1]: https://store.nolo.com/products/online-california-llc-ptlca-2.html https://store.nolo.com/products/online-california-llc-ptlca-... [2]: https://www.upcounsel.com/single-member-llc-operating-agreement https://www.upcounsel.com/single-member-llc-operating-agreem...
aviv 9y ago
The downside is that you are going to be left with a California LLC.
fowkswe 9y ago
Note that each state handles different aspects of LLC's differently. There is a reason many companies form LLC's in Nevada or Wyoming - those states have tons of legal precedence for different things pertaining to LLC's. So for example, avoiding certain types of litigation, or remaining anonymous are features of LLC's in those states. Note, I'm not a legal person, but these are things I was told to consider when picking a state to form your LLC.
- ojbyrne 9y ago
  This is the first I’ve heard of anyone incorporating in those 2 states. It’s always either Delaware or the state you’re located in.
  - camhart 9y ago
    For LLC its wyoming or nevada. Corp C/S i hear delaware.
    - 77pt77 9y ago
      What are the advantages of incorporating an LLc in wyoming or nevada vs other locations? Especially if you don't live there.
  - brobinson 9y ago
    I register all my LLCs in Wyoming even though I've never stepped foot in the state in my life.
- zawerf 9y ago
  > remaining anonymous are features of LLC's in those states Let's say you want to remain anonymous (not for any illegal reason, just pure privacy paranoia). Does that mean a california LLC won't work? What's the difference between those other states and using a registered agent for the mailing address in CA?
- brobinson 9y ago
  Wyoming also has precedent against "charging orders" (piercing of the corporate veil in single member LLCs), which is nice. You can also form a Wyoming LLC without even being a US citizen or resident. It's comically simple to setup and the annual fees are a joke. There's a large registered agent industry there.
justboxing 9y ago
... and then get ready to be taxed into Bankruptcy. CA has 1 of the highest business taxes. LLCs have to pay the State $800 every year, even if your business is losing money or has no revenue and even if you are a single-member LLC, in which case IRS regards it as a pass-through entity. On top of that, if you form your business in San Francisco, you are mandatory charged a 4% "Healthy San Francisco" city tax that is supposed to helps pay for employee's healthcare. > 2008 Health Care Security Ordinance, which provides health care to San Francisco residents without insurance (the Healthy San Francisco program) and requires businesses to help fund health care for their employees in San Francisco. Source: https://www.tripsavvy.com/restaurants-healthy-san-francisco-surcharges-2939548 https://www.tripsavvy.com/restaurants-healthy-san-francisco-... Restaurants were busted running a scam where they passed on this tax to the customer and pocketed the $$ themselves, but that's a whole different story (see Source link above).
- zaksoup 9y ago
  > ...taxed into Bankruptcy. Given that you're taxed on profits (reductive, I know) isn't this literally impossible? God forbid Californians value healthcare and that a city 45 minutes from the HQ of the richest company in the world, in the midst of a homelessness crisis, attempt to improve the lives of its at-risk citizens http://sfist.com/2017/06/26/2017_san_francisco_homeless_census.php http://sfist.com/2017/06/26/2017_san_francisco_homeless_cens...
  - abritinthebay 9y ago
    It is impossible. He’s just repeating talking points he heard but does not understand.
    - manigandham 9y ago
      What is impossible? The minimum franchise tax? Are you sure that you understand? https://www.ftb.ca.gov/businesses/faq/712.shtml https://www.ftb.ca.gov/businesses/faq/712.shtml >> Minimum tax is the amount you must pay the first quarter of each accounting period whether the corporation is active, operates at a loss or does not do business. The current minimum tax is $800.
deleted 9y ago
[deleted]
dawnerd 9y ago
Oregon has something similar. Was surprised how easy and fast it went through. People saying why not form in another state: it was my understanding that while you can do this you'd still have to register with the state you're actually in so you're not saving on taxes and just spending more money by registering twice? Maybe I'm just misinformed...
- ChuckMcM 9y ago
  In California the trigger is 'doing business in, or having facilities in California.' There were lots of interesting cases here around Amazon and others try to dodge California taxes (my mother-in-law was a CPA and had some really interesting stories about this). One of the more interesting was an attempt to tax one of the casino owners (I believe it was Harrahs but I don't have access to the records) because they lived in California (South Lake Tahoe). That was denied because the casino did not do any business with anyone in California and the guy they were chasing didn't do any work for the casino from home.
  - void-star 9y ago
    I think this points out a significant reason "why to incorporate in CA" (as is being discussed elsewhere in the comments, as in "... instead of Delaware") Could somebody clarify? Say I want to create a corporation, and will probably do work for it from home living in California. Does incorporating in Delaware now mean I will be paying the $800 tax (or some other) for CA, in addition to whatever Delaware charges?
    - mark212 9y ago
      If you’re not profitable, then the minimum fees matter. If you are turning a profit and you’re living in California and working from home (and assuming you have no employees) then there’s no real reason to incorporate in Delaware. The franchise fee is 1.5% with a minimum of $800 for all profits from business generated in California. So yes you’d pay the franchise fee for CA and the $250 to Delaware
chasingthewind 9y ago
It's important to remember that in some jurisdictions if you decide to fold your business you have to file a dissolution. Many also require that you file a yearly report. There's a few businesses that help with incorporations and it may be worth the extra fees to tap into their knowledge.
everdev 9y ago
FYI, it costs $20 to file a statement of information (every other year) to establish and maintain an LLC. But it costs $800 a year in state taxes.
chris_va 9y ago
PSA: $800/y minimum tax for a CA LLC.
xtracerx 9y ago
800 dollars a year even if you have no income? yeesh
- analognoise 9y ago
  Isn't that low for a business? I mean unless you're running a lemonade stand.
dollar 9y ago
https://www.nvsilverflume.gov/home https://www.nvsilverflume.gov/home Nevada has SilverFlume for many years. Also, no income taxes. Also, no Employment Development Department. Also, real estate at $1/sqft. Also...
- abalone 9y ago
  ...a largely tourism and mining based economy that has failed to attract high-tech talent.[1][2] [1] https://www.cnbc.com/2016/08/09/zappos-ceo-tony-hsieh-what-i-regret-about-pouring-350-million-into-las-vegas.html https://www.cnbc.com/2016/08/09/zappos-ceo-tony-hsieh-what-i... [2] https://qz.com/875086/five-years-in-tony-hsiehs-downtown-project-is-hardly-any-closer-to-being-a-real-city/ https://qz.com/875086/five-years-in-tony-hsiehs-downtown-pro...
  - dollar 9y ago
    I wouldn’t say Vegas failed to attract high tech talent. After 20 years in San Francisco and San Jose, we moved our tech businesses (and ourselves) to Las Vegas. Best decision ever. The Downtown Project was highly ambitious - area is just now starting to take off.
- mark212 9y ago
  Have you ever used it? Complete POS compared to Florida and South Dakota’s vastly superior web apps.
EGreg 9y ago
And then owe $700 a year for minimum franchise taxes
- w0mbat 9y ago
  $800
thrrrowwy 9y ago
and minimum $800 fee each year to CA for no reason whatsoever
omarforgotpwd 9y ago
Remember that California minumum tax for an LLC is $800. EVERY YEAR. that is what you have to pay even if you lose money or do nothing. don’t form an llc in 10 minutes and then screw yourself over with thousands of dollars of debt just because it makes you feel cool. A hardware engineer just came into my office earlier with a prototype for a cheap server with a good GPU for AI tasks. He incoporated in California in 2013 and still hasn't actually gotten a product out or made sales. Meanwhile he paid 6 years of taxes * $800 = $4800. He could have bought an iMac Pro, or invested in the business in some way if he had not incorporated. You don't need to officially be an LLC or corporation for your project to be real. If you really do need to legally form a company to separate out finances and liability, depending on what you’re doing, you might want to look at starting a Delaware C corporation (they have a minimum franchise tax of $350 plus I think a $50 filing fee). If you’re thinking of taking investment the rules and laws of Delaware are very well understood and there is a substantial amount of case law that makes it a lot more predictable to use their courts as almost everything that can happen has happened. So for certain types of companies it’s cheaper and better. For smaller things a C corporation may be overkill and an LLC or S Corporarion may work better if you do not need to raise money.
- BinaryIdiot 9y ago
  You do realize if you do business in CA you have to pay CA taxes, right? You're mentioning Delaware but that would be for corporations and dispute management. You're not going to get away from taxes...
  - briandear 9y ago
    We ARE talking about corporations.
    - vonmoltke 9y ago
      No, we are talking about LLCs. LLCs are not corporations.
      - 9y ago
Havoc 9y ago
haha no. Unless I specifically need US for some reason I'd rather go anywhere else. And if I have to do US it'll be a Delaware partnership.
joelrunyon 9y ago
Step 1. Don't. Step 2. Go anywhere but California.
unstatusthequo 9y ago
Might want to explore if California is really where you want it. Look at the yearly annual report costs for one. Also, with Trump's tax plan, C corps might be taxed less than you as flow through via your LLC. If your tax rate is above the new ~22% c corp rate, you might want to look at that and do a Delaware C or S Corp. Attorney; just sayin'
- aidenn0 9y ago
  IANAL, but pretty sure CA LLCs allow you to elect to be taxed as an S- or C- corporation.
  - deleted 9y ago
    [deleted]
- jjeaff 9y ago
  It would have to be pretty low to get ahead with a c-corp. Because to pay yourself passthrough on the c-corp, you will be getting the lower Trump corporate tax, but you still have to also pay capital gains tax when you receive it. (not to mention you still have to pay yourself a reasonable salary). I don't think cap gains tax plus corporate tax will end up less than even the highest earned income rate.
wheresmyusern 9y ago
can anyone give me advice? im starting a small online service that will charge customers -- i guess you could call it a "saas." i am the only person whatsoever involved with this project. am i required to incorporate if i start charging people for my online service? do i have to file taxes as a business? isnt there a clear and straightforward guide for this kind of thing?
- s73v3r_ 9y ago
  You would want to talk to a lawyer (which, if you are starting a business, you will want to have one), but you are not required to incorporate your business if you don't want to. However, incorporation does offer several benefits, which is why some people choose to do it.
  - wheresmyusern 9y ago
    this is what frustrates me. i cant afford a lawyer. from the looks of it, i cant afford to incorporate either. how is anyone supposed to bootstrap themselves these days?
    - jjeaff 9y ago
      You definitely do not need a lawyer. And you don't need an LLC either. Both of which are definitely "premature optimization". If you are in the US, you can just use your SSN and sign up directly with your payment processor as a sole proprietor. If things take off, you can start worrying about talking to a lawyer. You really won't have any reason to form an LLC until you need to hire real employees (W-2 employees).
    - s73v3r_ 9y ago
      Same way you'd bootstrap if you needed developers, and couldn't afford to hire developers. You can either study and try to do it yourself, you can offer equity (although lawyers are generally smarter than developers in this area, and few will take just equity, but you might be able to find someone), or you do it the old fashioned way and get a small business loan from a bank. Although, as has been said, you don't need an LLC if your business is not "there" yet.
ttul 9y ago
The USA sucks for incorporation. Here in Canada, I can create a fully fledged federal corporation that is as bulletproof as any for personal liability, for $200. Annually, I have to pay $20 to file an annual return. Taxes you can do yourself if they are simple - as in a single consultant. We don’t have LLCs.
- seanmccann 9y ago
  You do have to file 2 tax returns and suffer double taxation for your Canadian corporation. The benefit of a LLC is that it's pass through and reported on your personal tax return. It can minimize tax prep and taxes (YMMV).
  - ttul 9y ago
    Well, it’s not really double taxation because you can just flow through the income to yourself, leading to a loss for the company and a profit to you personally. But you are correct about the two tax return thing. That is a slight bummer.
matte_black 9y ago
Under a certain amount of revenue, the double taxation treatment of a C Corp actually saves you money compared to the pass through taxation most people elect as an LLC. And by the time you’re making larger revenues, you’ll want to be a C Corp anyway.
- jjeaff 9y ago
  How would that be? You still have to pay yourself a reasonable salary which would be taxed at regular earned income rates. And then for any dividends you pay yourself, you are going to pay corporate tax of 21% (after Trump tax changes hit) plus 15% or more capital gains.
drewmassey 9y ago
Good grief if you are this worried about these fees your company doesn’t have enough revenue to justify its existence. Yes I had a Delaware c-Corp with a foreign qualification for Massachusetts, no I would not have cared about these annual fees if my company was meeting growth targets. Please just spend a little time educating yourself about corporate structure and spend a lot of time building a company with real value. The former can typically be changed without a lot of fuss if the latter requires it.
- sleepyhead 9y ago
  Sure, but that doesn't really justify the fees. I keep hearing from Americans that we in Scandinavia are so heavily taxed. Very strange from me to hear about a $800 minimum tax fee. Also, not every company is a high flying startup. It might be a small hairdresser salon. $800 isn't pocket change for a small biz. In my case I have a company that has pretty much been inactive for many years as it just exists to have stocks in my previous and current startup. Wouldn't be happy about spending $800/year to keep it alive.
  - kevstev 9y ago
    This is for a specific type of corporate organization in a particular state. You can start a business without forming an LLC. If you really want to pretend you are for real, you would form a delaware corporation. Delaware is a tiny state that many years ago decided to create a very well defined and (permissive) legal framework for corporate law. Virtually any reasonably sized corporation is a Delaware corporation. Delaware does benefit from this... they get all the filing and other miscellaneous fees out of the deal as well.
vonnik 9y ago
We first incorporated under a CA LLC. It was worthless. If you ever plan on raising money in the US, form a Delaware C-Corp through Clerky. It’s cheap, fast and easy, and it will allow you to raise from VCs or any other outside investor. One reason: Delaware’s jurisprudence on almost any business issue is an established matter of record, which derisks investments.
tomc1985 9y ago
If one forms an LLC as a holding entity for child C-Corporations, would that allow the C-Corps' access to financing or would investors see the parent LLC and be turned off?
- pdshrader 9y ago
  What do you mean by "allow access to financing"? A fair number of founders maintain their stock ownership through an entity like an LLC. This could be for all sorts of reasons (tax planning, separating assets/liability). I would expect a potential investor (or their lawyers) to ask for the reasoning behind the structure, but assuming it's a relatively simple answer, that would be unlikely to have any major effect on the investment decision.
  - tomc1985 9y ago
    Sorry, I meant 'affect' not 'allow'. But you figured it out :)
- jjeaff 9y ago
  My guess is they would be turned off because control of the LLC could be transferred without their approval and could potential shield the owner of the LLC from litigation by the investors. They want your personal name on there so they can come after you personally in case something fishy happens.
Karishma1234 9y ago
Unless you have a very good reason do not register your company in California. Most certainly not because it costs $70. California is very backward in all sort of regulations and you will get into trouble as your company goes bigger and bigger. Always register your company in Delaware. There is a good reason why most companies are register in Delaware or Florida and not in Communist Republic of California !
mynewcompany 9y ago
FYI we publish guides like this for all 50 states and have comprehensive guides including checklists for the top 7 states: https://www.mycompanyworks.com/states.htm https://www.mycompanyworks.com/states.htm
pascalxus 9y ago
Don't forget, you will need to pay 800$ every year in CA sos LLC taxes
wemdyjreichert 9y ago
What's the best way to do this in Texas for cheap?
Edzus124 9y ago
It's really good that people find way's that is more easier and cheaper for everyone. Get Factoring from EUR 1000 to EUR 50 000. City Finances. https://bit.ly/2uwKHav https://bit.ly/2uwKHav
deleted 9y ago
[deleted]
peter_retief 9y ago
Before I read the whole article, do I have to be a US citizen to create the LLC?
rdlecler1 9y ago
I would love to see a startup package in the US (for genuine startups). No franchise taxes for three years, no employee tax—-or a simple contractor system—a simple and inexpensive corporate healthcare plan, a simple tax form for companies with little or no revenue. Running a startup is hard enough already then you have to put up with all of this admin nonsense when you’re just trying to keep your head above water. Why waste all this money on lawyers and accountants when it could be put into your business.
simonebrunozzi 9y ago
This thread is really interesting, let me tell you why. 1) Forming an LLC, or a trust, or similar things, has always been considered complex, expensive, and requiring human supervision. I guess and assume that a large percentage of the population still believes it is the case. 2) This thread, however, confirms that people are ready to see #1 challenged and eventually removed. And there are numerous examples of websites, resources, etc, pointing at simple and elegant solutions that would apply to MOST cases. (deciding whether your case belongs to "most" or not might not be too simple though). 3) There is so much unexpressed potential in the ability for people to put these matters into their own hands. Don't get me wrong, experts are and will still be required in many cases, but the point still stands. An example? Everybody owning property should use some form of legal entity to own/manage that property. Why? Because in its simplest form (a trust) it is literally cost-free, and brings several benefits out of the gate (no probate on death; legal separation between trustee and beneficiary; etc). For slightly more specific needs, an LLCs or other similar vehicles also provide great benefits (although require tax reporting, and some state and local tax to be paid each year). And these tools shouldn't be expensive. Not for most people. In my recent experience, I have been dealing with the structure of a land trust to facilitate real estate transactions (using the Blockchain to record these transactions - before you say anything, we're not crypto fanatics, the crypto part is actually quite straightforward and not too crazy like many projects out there). We are a startup, and we invested a significant chunk of our initial funding in fees (legal and otherwise). We intend to open source most of our outcomes eventually, and hope that MOST people will be able to actually benefit from this, instead of spending several orders of magnitude more to have it done the old way. In that regard, the "setting up an LLC in 10 minutes for $70" is exactly how these things should be. (again, provided that you belong to the "most cases" category). All in all, I'm really happy that this is happening. As a side note, if you have experience with trusts and LLCs used for real estate investment, I would be very happy to chat with you - I come from the IT world (Amazon, etc) and still have a lot to learn from experienced people.
JAdamMoore 9y ago
This is stupid. California is the worst tax choice for everything.
- dx034 9y ago
  And yet it remains one of the top destination for start-ups. Which indicates that getting rid of taxes and regulation (which states/countries do to get more business) can bring business in the short-term (companies forming subsidiaries and channelling business) but doesn't help the economy in the long term. If you have the right environment for companies to form, higher taxes don't destroy that. Sweden also appears to be a good example, high taxes and stricter regulation (partly through the EU) and still a very active start-up scene.
  - carlmr 9y ago
    Sweden offers more benefits for it's taxes though. I think California is only attractive because of the SV hype.
    - dx034 9y ago
      Most of those benefits are the safety net you get if your startup fails. I think the main benefit for a startup is having similar companies close by.
      - carlmr 9y ago
        Safety net not only if your startup is failing, but also while you're starting out, money to start your startup, amazing public transport, a functioning public education system which gives you employees that don't need the highest pay to service their loans, ... the list could go on for a long time.
  - closeparen 9y ago
    There is practically zero state-level regulation that could pose a significant challenge to a tech startup, and tech startups are not really in the business of generating taxable profits either.
bitrazor123 9y ago
If the company is worth something, 70 or or 200 isn't much apart. But if it isn't than even a 70 USD is a baggage. I liked the 10 minute part though.
JohnnyHero 9y ago
WHY OH WHY would anyone form a corporation in California? Or live or do business in a Communist State?
deleted 9y ago
[deleted]
dsfyu404ed 9y ago
I fail to see the benefit of a California LLC over an LLC in one of the other 49. It seems to me like choosing CA over some state with less onerous taxes and is like loading a gun and pointing it at your foot. If you wind up doing business that wouldn't be subject to CA taxes then the CA taxes on that would be money down the drain.
dmh2000 9y ago
might want to look at the advantages of other states, Nevada for instance. You can start you LLC in any state. doesn't have to be where your business is located
Cshelton 9y ago
Yeah, I don't know about this advice. If you are by yourself, starting a company, just go register a d.b.a (doing business as) at your local courthouse. And yes, a CPA will cost you money, but it is something you must have right and is worth the cost. By having a CPA, you will avoid falling into a situation where you end up paying a fine, or have unexpected fees/taxes, or, more often than not, the CPA will actually show you how to structure/operate in a way that will SAVE you taxes and fees. If you are going into a partnership or S/C Corp with different owners, than the money spent on a lawyer as well as the CPA is very much worth it. Save yourself down the road and spend the money now to do it right.
joshuaheard 9y ago
This blog lists the steps to take to get a corporate file number issued from the state. It is only a subset of the steps required to fully form a corporation. If you want to form a corporation yourself, there are many books on Amazon that can walk you through the entire process.
gregpilling 9y ago
You could also use something like ZenBusiness which is free https://www.zenbusiness.com/pricing https://www.zenbusiness.com/pricing . They are a startup out of Austin TX.
petesalty 9y ago
I've never really understood the desire to "save" on lawyer costs up front. Lawyer money is the cheapest money you'll ever spend, if you use it right. Having a lawyer set up your company correctly from the start is not expensive. Where it does get expensive is when you try to get investment, or bought or some other event and they have to spend months unraveling the gigantic mess you've made by doing all the legal yourself based on some blog posts you read. To save on costs, don’t go to a big firm, they are expensive. Ask around and find a solid boutique firm that specialises in your area. They will often do some kind of deferment if you are really small, although there’s usually a retainer. Get it done right, the first time, and you won’t have to spend money on it again. This applies to anything legal; incorporation, contracts, employment agreements, licences, etc.
w0mbat 9y ago
Dealing with the California Franchise Tax Board for a single member LLC ever afterwards is a pain. You need to file a 568 with them every year, on paper even if you e-file your CA state taxes, which includes the same data. You need to pay them $800 every year through their terrible website and its Web Pay system. Just getting an account on their website involves them sending you a magic access code in a letter which takes a week and if it doesn't work you have to start again and wait another week. If you ever forget to file something on time they fine you and charge you interest, and threaten to suspend your LLC. I wish I'd just filed a "doing business as".

494 points by mmckelvy 9y ago

aphextron 9y ago

Can anyone explain the pros/cons of LLC vs. a Delaware C corp?

JumpCrisscross 9y ago
> LLC vs. a Delaware C corp? Both Delaware and California offer LLCs, as well as incorporation options. Are you contrasting an LLC versus a C Corp, or a Delaware LLC with a California LLC?
- aphextron 9y ago
  >Are you contrasting an LLC versus a C Corp, or a Delaware LLC with a California LLC? A Delaware C corp vs. a California LLC
  - JumpCrisscross 9y ago
    See http://www.calstartuplawfirm.com/business-lawyer-blog/california-vs-delaware-incorporation.php http://www.calstartuplawfirm.com/business-lawyer-blog/califo.... TL; DR If you’re raising outside financing, Delaware. Otherwise, California is probably fine. (Assuming you have a nexus in California.) Disclaimer: I am not a lawyer. This is not legal advice. Don’t make these decisions without a lawyer.
    - deleted 9y ago
      [deleted]
    - pandasun 9y ago
      What about a California C Corp LLC in Delaware?
      - JumpCrisscross 9y ago
        > California C Corp LLC in Delaware I don’t understand. “C Corp LLC” doesn’t make sense; you can’t be both.
        zrail 9y ago
        Sure can. An LLC can elect to be treated as a C corporation for tax purposes with a very simple IRS form.
        JumpCrisscross 9y ago
        > An LLC can elect to be treated as a C corporation for tax purposes Still an LLC. We’re talking about entity formation and comparing jurisdictions; being legally precise becomes important in this context. Disclaimer: I am not a lawyer. This is not legal advice.
        gamblor956 9y ago
        Still an LLC. We’re talking about entity formation and comparing jurisdictions; being legally precise becomes important in this context. Right. It's still an LLC, for specific state legal purposes. And it's generally a C-corporation for tax purposes, federal and international law.
        JumpCrisscross 9y ago
        > it's generally a C-corporation for tax purposes, federal and international law A single-member LLC electing to be taxed as a corporation will still be sued as an LLC (i.e. it can be pierced more like an LLC and less like a corporation), dissolved and maintained as an LLC and enter into contracts, open bank and brokerage accounts as an LLC, and have the same difficulties raising outside capital as an LLC. Disclaimer: I am not a lawyer. This is not legal advice.
mmckelvy 9y ago
I break down the differences among entities in another post from the same blog: https://blog.bookandledger.com/topics/business-formation/intro-to-forming-a-business https://blog.bookandledger.com/topics/business-formation/int...
jalonso510 9y ago
For a traditional startup, that will (i) raise money from investors or (ii) give equity to employees, you should just be a Delaware c-corporation. Those are streamlined, known, and easy processes with a Delaware corporation. Every lawyer in this space has forms for that and can read those documents with a baseline of familiarity. If you try to innovate here and set up a startup as an LLC or a California corporation, you are complicating every corporate transaction you'll do and adding cost to every interaction with your lawyer and the counterparty's lawyer. And you will prohibit investment from certain VCs who aren't able to invest in pass-thru entities because some of their LPs manage retirement money and are subject to ERISA. There are other businesses where an LLC makes sense, including possibly for a bootstrapped startup that will have one stockholder for its whole existence. But that's not my area. Not even going to include a disclaimer about this not being legal advice, because I am a lawyer and this is good advice :)
- mmckelvy 9y ago
  I would just add that tax classification and the liability protection entity are two different things. You can form an LLC and elect to be taxed as a C Corp. The upside is most states have fewer admin requirements for LLCs (e.g. you don't have to keep minutes, name officers, etc.) As for Delaware vs. your home state (CA in this case), I think it depends on the business. If you are a multi-national corp, sure go with Delaware. But if you live in CA, the other owners live in CA, and you're mostly doing business in CA, I'm not sure you'd need a Delaware corp. Delaware has franchise taxes of its own, so you'll end up paying taxes and fees in two states because you'll have to register as a foreign corp in your home state (CA).
  - jalonso510 9y ago
    No dispute from me that you can save a little bit on taxes by forming a California corporation if you're in California. Specifically the ~$400 of Delaware franchise taxes. But my point is that any company doing typical startup activities will spend more than $400 extra the first time they interact with their lawyer, an investor's lawyer or the state of California. For example - this week I'm helping someone with a simple filing in California, and the processing time is 10-12 days, unless we pay California an extra $350 expedite fee, whereas Delaware will turn the same filing around in 2-3 days with no expedite fee. Or, for another one - in California you can't submit an electronically signed document for a filing, so you and your lawyer get to spend the extra billable time dealing with scanning PDFs instead of DocuSign. And you get to deal with the lottery of attorney reviewers who will sometimes reject Articles of Incorporation over things that have been OK in every other document you've ever filed. And this is all separate from the fact that the lawyers on both sides of your transaction are secretly scratching their heads while they dust off their copy of the California Corporations Code and billing your for the time they spend figuring out what's different from Delaware. It's just not worth it for the $400.
gamblor956 9y ago
I would never advise someone to setup a Delaware C corporation unless they were very narrowly focused on raising VC funding, going public in the near term, or creating a subsidiary of a large, profitable company that uses the corporate structure. A C-corporation is the least tax-efficient and least capital-efficient structure, and you don't even get the benefit of limited liability over the LLC form because LLCs also get limited liability.

tardo99 9y ago

The $800 annual tax is worth people knowing about.

chrisfinne 9y ago
This should be top comment! I gave up the LLC protection after a couple years of this price gouging.
asdsa5325 9y ago
This. Forming a company in CA is stupid, no other state has this insane tax.
- gamblor956 9y ago
  Most states have minimum franchise taxes. CA charges on the higher side because CA offers the biggest market. In effect, CA is taking advantage of the libertarian free market principle of supply and demand. They have the largest supply of potential customers, and there is a large demand of businesses wanting access to those customers, and the minimum franchise fee reflects that. You're free to set up shop in South Dakota (no minimum) and see just how many customers you find there...
  - asdsa5325 9y ago
    You can incorporate in any state, it doesn't matter where your customers are. Most CA companies (and most companies, across all states) form in Delaware for legal reasons. CA is not a popular place to incorporate in.
    - s73v3r_ 9y ago
      But if they're located in CA, which many of them are, they still have to pay the $800.
nlh 9y ago
FYI (and standard IANAL/IANACPA stuff too): If you do business in CA, which is to say you earn revenue in CA (and file a corporate/partnership tax return in CA), you’re paying the $800 annual fee regardless. So even if you form a Delaware LLC or Delaware C-Corp or Florida LLC and you earn money in CA, you’re paying the franchise tax.

giancarlostoro 9y ago

You can also do it in Florida entirely online but for $130. Wonder why the huge difference in cost. More info: http://dos.myflorida.com/sunbiz/start-business/ http://dos.myflorida.com/sunbiz/start-business/ To actually create one: https://efile.sunbiz.org/llc_file.html https://efile.sunbiz.org/llc_file.html

kkielhofner 9y ago
Florida has no state income tax on individuals. I don't have any data to back it up but it seems that states with lower income tax receipts usually attempt to make up some of the revenue by charging higher rates for various other government services that aren't immediately visible to most of the voting/tax base.
bubbleRefuge 9y ago
Also Florida requires and annual filing and associated fee of $200 I believe.
- thaumasiotes 9y ago
  $130 up front and $200 a year beats the heck out of $70 up front and $800 a year.
  - gamblor956 9y ago
    If you do business in California with a FL-registered LLC, all that you have accomplished is that you now pay $130 to Florida once to register plus $200/year, then another $20+ to CA to register as a foreign LLC plus $800/year.
    - twoodfin 9y ago
      What does “do business in California” mean? If my LLC opens up a shop on Etsy and I ship to California customers am I supposed to register as a foreign LLC and pay $800/year? If so, that’s nuts and we need some beefier Commerce Clause jurisprudence.

floatingatoll 9y ago

This is an incredibly misleading title. They charge you $70 in filing fees, yes - and then over $800/year in annual LLC fees.

jeffreyrogers 9y ago
How is it misleading? It costs $70 to form the LLC, just like the title says.
- asdsa5325 9y ago
  Because your newly formed LLC will disappear if you don't pay $800 more? My Ferrari costs only $1! Well, it also costs $2000/mo, but let's just ignore that.
ryandrake 9y ago
Yep, a buddy and I kicked around the idea of doing a startup and we thought it would be best to do it right by writing up a simple operating agreement and officially registering with the state. Several months later we realized we didn’t have a realistic plan and decided against continuing. We still owed that tax though! That $800 (and additional $400 to an accountant to make sure we didn’t screw up any paperwork around CA taxes) was far and away our largest “business expense”. We might as well have lit it on fire—what a waste.
- newman8r 9y ago
  I've done the same thing multiple times. My current preference is to validate a concept before forming an LLC, and preferably before even looking for a partner.
- gamblor956 9y ago
  $800 is a lot of money for someone pretending at business but it's a trivial cost for a real business actually earning money. And that's the point. It's a filter to weed out those that can't afford $800/year or aren't serious enough about their business activities to put up with the expense.

legohorizons 9y ago

Hey Mark - who do this in CA and not in DE? Also, a lot of students I know would be interested in learning more about bookandledger - do you have 40 minutes to give a talk about the new co. and your past experiences?

philfrasty 9y ago

Expanding on this: can someone recommend resources (books/videos/articles/etc) on holding structures (interested in US and Europe)? This is such a scammy industry and Googling only brings you so far. To clarify: I DO NOT want to evade taxes, just separate operational risk.

JumpCrisscross 9y ago
> can someone recommend resources (books/videos/articles/etc) on holding structures (interested in US and Europe)? Get a bottle of Scotch, clear a week-end and grab an annotated copy of Delaware’s General Corporation Law [1]. Read it. Book two hours with a top-tier lawyer. Ask them questions. DE law will give you an overview with which to ask the right questions for across the U.S. Pedantic overkill? Yes. Satisfying if you’re the right personality type? Absolutely. (Caveat: the law is complex and unforgiving. Use this to ask a lawyer good questions versus pretending to be a lawyer yourself.) [1] https://store.lexisnexis.com/products/delaware-corporation-laws-annotated-skuusSku6622 https://store.lexisnexis.com/products/delaware-corporation-l... Disclaimer: I am not a lawyer. This is not legal advice. Do not form a legal entity without speaking to a lawyer.
- briandear 9y ago
  A side note, has anyone actually ever sued anyone for not having a disclaimer? It seems a lot like don’t use a hair dryer in the shower. “I am suing because some dude on Hacker News suggested..”
  - JumpCrisscross 9y ago
    It’s more so someone doesn’t think I’m a lawyer, follow my Internet commentary and then come to harm themselves. The disclaimer is my way of saying “I am speaking beyond my circle of competence, but still think what I have to say is interesting.”
- lsiebert 9y ago
  How does the annotated copy differ from that provided by delaware itself, (other than cost)? https://corp.delaware.gov/DElaw.shtml https://corp.delaware.gov/DElaw.shtml

will_brown 9y ago

Maybe I’m biased but, this is one of those times where the advice is just enough to get you into trouble. No mention of single member vs multi-member LLC, and lack of certain liability protections with single member LLCs. Most people will have expectation of liability protection, and those single member LLCs may be surprised to find the assets of their single member LLC at risk for their personal liabilities. No mention of tax treatment, by default single member LLC is pass through (no need to file separate federal return), but can elect to be taxed as a Corporation or S-Corporation. No mention multi-member is taxed by default as a partnership but can elect tax treatment as Corporation or S-Corporation. No mention of an Operating Agreement, which is the controlling document; therefore, without one the LLC is governed by California Code. These issues are of great importance, example: you may have a partner and the death of the partner may result in dissolution of the LLC or maybe having a new, unwanted partner(s) (spouse and/or heirs of the deceased partner), but without the operating agreement California Law will dictate.

mmckelvy 9y ago
Yeah this article is meant as a simple how-to for someone that has already decided they want to form an LLC in California and understand the pros and cons. I cover some of the issues you cite in another post: https://blog.bookandledger.com/topics/business-formation/intro-to-forming-a-business https://blog.bookandledger.com/topics/business-formation/int...
- jiveturkey 9y ago
  Yeah the original article is almost worthless. The 2nd article you just linked is much better, and usefully informative. However, it still needs: - info about the need for an operating agreement - more detail about piercing the corporate veil - discussion of FTB and IRS reclassifying as hobby business You are advertising to a very technical audience and should address these things at a deep level.
  - theptip 9y ago
    I strongly disagree with "almost worthless"; assuming you've made the decision to form a CA LLC, this post is very useful. You're making some quite strident demands of some random person on the internet here ;) Having said that, I too would be interested in the extra topics that you listed, particularly the operating agreement piece. I looked into this recently and NoLo offers a $100-300 service [1] which comes with options, vs. free Operating Agreements like this random one on UpCounsel[2]. I have no idea what the parameters are on this, and in the past I've just leant on a lawyer friend to do this for me; I'd like to understand the details. [1]: https://store.nolo.com/products/online-california-llc-ptlca-2.html https://store.nolo.com/products/online-california-llc-ptlca-... [2]: https://www.upcounsel.com/single-member-llc-operating-agreement https://www.upcounsel.com/single-member-llc-operating-agreem...

aviv 9y ago

The downside is that you are going to be left with a California LLC.

fowkswe 9y ago

Note that each state handles different aspects of LLC's differently. There is a reason many companies form LLC's in Nevada or Wyoming - those states have tons of legal precedence for different things pertaining to LLC's. So for example, avoiding certain types of litigation, or remaining anonymous are features of LLC's in those states. Note, I'm not a legal person, but these are things I was told to consider when picking a state to form your LLC.

ojbyrne 9y ago
This is the first I’ve heard of anyone incorporating in those 2 states. It’s always either Delaware or the state you’re located in.
- camhart 9y ago
  For LLC its wyoming or nevada. Corp C/S i hear delaware.
  - 77pt77 9y ago
    What are the advantages of incorporating an LLc in wyoming or nevada vs other locations? Especially if you don't live there.
- brobinson 9y ago
  I register all my LLCs in Wyoming even though I've never stepped foot in the state in my life.
zawerf 9y ago
> remaining anonymous are features of LLC's in those states Let's say you want to remain anonymous (not for any illegal reason, just pure privacy paranoia). Does that mean a california LLC won't work? What's the difference between those other states and using a registered agent for the mailing address in CA?
brobinson 9y ago
Wyoming also has precedent against "charging orders" (piercing of the corporate veil in single member LLCs), which is nice. You can also form a Wyoming LLC without even being a US citizen or resident. It's comically simple to setup and the annual fees are a joke. There's a large registered agent industry there.

justboxing 9y ago

... and then get ready to be taxed into Bankruptcy. CA has 1 of the highest business taxes. LLCs have to pay the State $800 every year, even if your business is losing money or has no revenue and even if you are a single-member LLC, in which case IRS regards it as a pass-through entity. On top of that, if you form your business in San Francisco, you are mandatory charged a 4% "Healthy San Francisco" city tax that is supposed to helps pay for employee's healthcare. > 2008 Health Care Security Ordinance, which provides health care to San Francisco residents without insurance (the Healthy San Francisco program) and requires businesses to help fund health care for their employees in San Francisco. Source: https://www.tripsavvy.com/restaurants-healthy-san-francisco-surcharges-2939548 https://www.tripsavvy.com/restaurants-healthy-san-francisco-... Restaurants were busted running a scam where they passed on this tax to the customer and pocketed the $$ themselves, but that's a whole different story (see Source link above).

zaksoup 9y ago
> ...taxed into Bankruptcy. Given that you're taxed on profits (reductive, I know) isn't this literally impossible? God forbid Californians value healthcare and that a city 45 minutes from the HQ of the richest company in the world, in the midst of a homelessness crisis, attempt to improve the lives of its at-risk citizens http://sfist.com/2017/06/26/2017_san_francisco_homeless_census.php http://sfist.com/2017/06/26/2017_san_francisco_homeless_cens...
- abritinthebay 9y ago
  It is impossible. He’s just repeating talking points he heard but does not understand.
  - manigandham 9y ago
    What is impossible? The minimum franchise tax? Are you sure that you understand? https://www.ftb.ca.gov/businesses/faq/712.shtml https://www.ftb.ca.gov/businesses/faq/712.shtml >> Minimum tax is the amount you must pay the first quarter of each accounting period whether the corporation is active, operates at a loss or does not do business. The current minimum tax is $800.

deleted 9y ago

[deleted]

dawnerd 9y ago

Oregon has something similar. Was surprised how easy and fast it went through. People saying why not form in another state: it was my understanding that while you can do this you'd still have to register with the state you're actually in so you're not saving on taxes and just spending more money by registering twice? Maybe I'm just misinformed...

ChuckMcM 9y ago
In California the trigger is 'doing business in, or having facilities in California.' There were lots of interesting cases here around Amazon and others try to dodge California taxes (my mother-in-law was a CPA and had some really interesting stories about this). One of the more interesting was an attempt to tax one of the casino owners (I believe it was Harrahs but I don't have access to the records) because they lived in California (South Lake Tahoe). That was denied because the casino did not do any business with anyone in California and the guy they were chasing didn't do any work for the casino from home.
- void-star 9y ago
  I think this points out a significant reason "why to incorporate in CA" (as is being discussed elsewhere in the comments, as in "... instead of Delaware") Could somebody clarify? Say I want to create a corporation, and will probably do work for it from home living in California. Does incorporating in Delaware now mean I will be paying the $800 tax (or some other) for CA, in addition to whatever Delaware charges?
  - mark212 9y ago
    If you’re not profitable, then the minimum fees matter. If you are turning a profit and you’re living in California and working from home (and assuming you have no employees) then there’s no real reason to incorporate in Delaware. The franchise fee is 1.5% with a minimum of $800 for all profits from business generated in California. So yes you’d pay the franchise fee for CA and the $250 to Delaware

chasingthewind 9y ago

It's important to remember that in some jurisdictions if you decide to fold your business you have to file a dissolution. Many also require that you file a yearly report. There's a few businesses that help with incorporations and it may be worth the extra fees to tap into their knowledge.

everdev 9y ago

FYI, it costs $20 to file a statement of information (every other year) to establish and maintain an LLC. But it costs $800 a year in state taxes.

chris_va 9y ago

PSA: $800/y minimum tax for a CA LLC.

xtracerx 9y ago

800 dollars a year even if you have no income? yeesh

analognoise 9y ago
Isn't that low for a business? I mean unless you're running a lemonade stand.

dollar 9y ago

https://www.nvsilverflume.gov/home https://www.nvsilverflume.gov/home Nevada has SilverFlume for many years. Also, no income taxes. Also, no Employment Development Department. Also, real estate at $1/sqft. Also...

abalone 9y ago
...a largely tourism and mining based economy that has failed to attract high-tech talent.[1][2] [1] https://www.cnbc.com/2016/08/09/zappos-ceo-tony-hsieh-what-i-regret-about-pouring-350-million-into-las-vegas.html https://www.cnbc.com/2016/08/09/zappos-ceo-tony-hsieh-what-i... [2] https://qz.com/875086/five-years-in-tony-hsiehs-downtown-project-is-hardly-any-closer-to-being-a-real-city/ https://qz.com/875086/five-years-in-tony-hsiehs-downtown-pro...
- dollar 9y ago
  I wouldn’t say Vegas failed to attract high tech talent. After 20 years in San Francisco and San Jose, we moved our tech businesses (and ourselves) to Las Vegas. Best decision ever. The Downtown Project was highly ambitious - area is just now starting to take off.
mark212 9y ago
Have you ever used it? Complete POS compared to Florida and South Dakota’s vastly superior web apps.

EGreg 9y ago

And then owe $700 a year for minimum franchise taxes

w0mbat 9y ago
$800

thrrrowwy 9y ago

and minimum $800 fee each year to CA for no reason whatsoever

omarforgotpwd 9y ago

Remember that California minumum tax for an LLC is $800. EVERY YEAR. that is what you have to pay even if you lose money or do nothing. don’t form an llc in 10 minutes and then screw yourself over with thousands of dollars of debt just because it makes you feel cool. A hardware engineer just came into my office earlier with a prototype for a cheap server with a good GPU for AI tasks. He incoporated in California in 2013 and still hasn't actually gotten a product out or made sales. Meanwhile he paid 6 years of taxes * $800 = $4800. He could have bought an iMac Pro, or invested in the business in some way if he had not incorporated. You don't need to officially be an LLC or corporation for your project to be real. If you really do need to legally form a company to separate out finances and liability, depending on what you’re doing, you might want to look at starting a Delaware C corporation (they have a minimum franchise tax of $350 plus I think a $50 filing fee). If you’re thinking of taking investment the rules and laws of Delaware are very well understood and there is a substantial amount of case law that makes it a lot more predictable to use their courts as almost everything that can happen has happened. So for certain types of companies it’s cheaper and better. For smaller things a C corporation may be overkill and an LLC or S Corporarion may work better if you do not need to raise money.

BinaryIdiot 9y ago
You do realize if you do business in CA you have to pay CA taxes, right? You're mentioning Delaware but that would be for corporations and dispute management. You're not going to get away from taxes...
- briandear 9y ago
  We ARE talking about corporations.
  - vonmoltke 9y ago
    No, we are talking about LLCs. LLCs are not corporations.
    - 9y ago

Havoc 9y ago

haha no. Unless I specifically need US for some reason I'd rather go anywhere else. And if I have to do US it'll be a Delaware partnership.

joelrunyon 9y ago

Step 1. Don't. Step 2. Go anywhere but California.

unstatusthequo 9y ago

Might want to explore if California is really where you want it. Look at the yearly annual report costs for one. Also, with Trump's tax plan, C corps might be taxed less than you as flow through via your LLC. If your tax rate is above the new ~22% c corp rate, you might want to look at that and do a Delaware C or S Corp. Attorney; just sayin'

aidenn0 9y ago
IANAL, but pretty sure CA LLCs allow you to elect to be taxed as an S- or C- corporation.
- deleted 9y ago
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jjeaff 9y ago
It would have to be pretty low to get ahead with a c-corp. Because to pay yourself passthrough on the c-corp, you will be getting the lower Trump corporate tax, but you still have to also pay capital gains tax when you receive it. (not to mention you still have to pay yourself a reasonable salary). I don't think cap gains tax plus corporate tax will end up less than even the highest earned income rate.

wheresmyusern 9y ago

can anyone give me advice? im starting a small online service that will charge customers -- i guess you could call it a "saas." i am the only person whatsoever involved with this project. am i required to incorporate if i start charging people for my online service? do i have to file taxes as a business? isnt there a clear and straightforward guide for this kind of thing?

s73v3r_ 9y ago
You would want to talk to a lawyer (which, if you are starting a business, you will want to have one), but you are not required to incorporate your business if you don't want to. However, incorporation does offer several benefits, which is why some people choose to do it.
- wheresmyusern 9y ago
  this is what frustrates me. i cant afford a lawyer. from the looks of it, i cant afford to incorporate either. how is anyone supposed to bootstrap themselves these days?
  - jjeaff 9y ago
    You definitely do not need a lawyer. And you don't need an LLC either. Both of which are definitely "premature optimization". If you are in the US, you can just use your SSN and sign up directly with your payment processor as a sole proprietor. If things take off, you can start worrying about talking to a lawyer. You really won't have any reason to form an LLC until you need to hire real employees (W-2 employees).
  - s73v3r_ 9y ago
    Same way you'd bootstrap if you needed developers, and couldn't afford to hire developers. You can either study and try to do it yourself, you can offer equity (although lawyers are generally smarter than developers in this area, and few will take just equity, but you might be able to find someone), or you do it the old fashioned way and get a small business loan from a bank. Although, as has been said, you don't need an LLC if your business is not "there" yet.

ttul 9y ago

The USA sucks for incorporation. Here in Canada, I can create a fully fledged federal corporation that is as bulletproof as any for personal liability, for $200. Annually, I have to pay $20 to file an annual return. Taxes you can do yourself if they are simple - as in a single consultant. We don’t have LLCs.

seanmccann 9y ago
You do have to file 2 tax returns and suffer double taxation for your Canadian corporation. The benefit of a LLC is that it's pass through and reported on your personal tax return. It can minimize tax prep and taxes (YMMV).
- ttul 9y ago
  Well, it’s not really double taxation because you can just flow through the income to yourself, leading to a loss for the company and a profit to you personally. But you are correct about the two tax return thing. That is a slight bummer.

matte_black 9y ago

Under a certain amount of revenue, the double taxation treatment of a C Corp actually saves you money compared to the pass through taxation most people elect as an LLC. And by the time you’re making larger revenues, you’ll want to be a C Corp anyway.

jjeaff 9y ago
How would that be? You still have to pay yourself a reasonable salary which would be taxed at regular earned income rates. And then for any dividends you pay yourself, you are going to pay corporate tax of 21% (after Trump tax changes hit) plus 15% or more capital gains.

drewmassey 9y ago

Good grief if you are this worried about these fees your company doesn’t have enough revenue to justify its existence. Yes I had a Delaware c-Corp with a foreign qualification for Massachusetts, no I would not have cared about these annual fees if my company was meeting growth targets. Please just spend a little time educating yourself about corporate structure and spend a lot of time building a company with real value. The former can typically be changed without a lot of fuss if the latter requires it.

sleepyhead 9y ago
Sure, but that doesn't really justify the fees. I keep hearing from Americans that we in Scandinavia are so heavily taxed. Very strange from me to hear about a $800 minimum tax fee. Also, not every company is a high flying startup. It might be a small hairdresser salon. $800 isn't pocket change for a small biz. In my case I have a company that has pretty much been inactive for many years as it just exists to have stocks in my previous and current startup. Wouldn't be happy about spending $800/year to keep it alive.
- kevstev 9y ago
  This is for a specific type of corporate organization in a particular state. You can start a business without forming an LLC. If you really want to pretend you are for real, you would form a delaware corporation. Delaware is a tiny state that many years ago decided to create a very well defined and (permissive) legal framework for corporate law. Virtually any reasonably sized corporation is a Delaware corporation. Delaware does benefit from this... they get all the filing and other miscellaneous fees out of the deal as well.

vonnik 9y ago

We first incorporated under a CA LLC. It was worthless. If you ever plan on raising money in the US, form a Delaware C-Corp through Clerky. It’s cheap, fast and easy, and it will allow you to raise from VCs or any other outside investor. One reason: Delaware’s jurisprudence on almost any business issue is an established matter of record, which derisks investments.

tomc1985 9y ago

If one forms an LLC as a holding entity for child C-Corporations, would that allow the C-Corps' access to financing or would investors see the parent LLC and be turned off?

pdshrader 9y ago
What do you mean by "allow access to financing"? A fair number of founders maintain their stock ownership through an entity like an LLC. This could be for all sorts of reasons (tax planning, separating assets/liability). I would expect a potential investor (or their lawyers) to ask for the reasoning behind the structure, but assuming it's a relatively simple answer, that would be unlikely to have any major effect on the investment decision.
- tomc1985 9y ago
  Sorry, I meant 'affect' not 'allow'. But you figured it out :)
jjeaff 9y ago
My guess is they would be turned off because control of the LLC could be transferred without their approval and could potential shield the owner of the LLC from litigation by the investors. They want your personal name on there so they can come after you personally in case something fishy happens.

Karishma1234 9y ago

Unless you have a very good reason do not register your company in California. Most certainly not because it costs $70. California is very backward in all sort of regulations and you will get into trouble as your company goes bigger and bigger. Always register your company in Delaware. There is a good reason why most companies are register in Delaware or Florida and not in Communist Republic of California !

mynewcompany 9y ago

FYI we publish guides like this for all 50 states and have comprehensive guides including checklists for the top 7 states: https://www.mycompanyworks.com/states.htm https://www.mycompanyworks.com/states.htm

pascalxus 9y ago

Don't forget, you will need to pay 800$ every year in CA sos LLC taxes

wemdyjreichert 9y ago

What's the best way to do this in Texas for cheap?

Edzus124 9y ago

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deleted 9y ago

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peter_retief 9y ago

Before I read the whole article, do I have to be a US citizen to create the LLC?

rdlecler1 9y ago

I would love to see a startup package in the US (for genuine startups). No franchise taxes for three years, no employee tax—-or a simple contractor system—a simple and inexpensive corporate healthcare plan, a simple tax form for companies with little or no revenue. Running a startup is hard enough already then you have to put up with all of this admin nonsense when you’re just trying to keep your head above water. Why waste all this money on lawyers and accountants when it could be put into your business.

simonebrunozzi 9y ago

This thread is really interesting, let me tell you why. 1) Forming an LLC, or a trust, or similar things, has always been considered complex, expensive, and requiring human supervision. I guess and assume that a large percentage of the population still believes it is the case. 2) This thread, however, confirms that people are ready to see #1 challenged and eventually removed. And there are numerous examples of websites, resources, etc, pointing at simple and elegant solutions that would apply to MOST cases. (deciding whether your case belongs to "most" or not might not be too simple though). 3) There is so much unexpressed potential in the ability for people to put these matters into their own hands. Don't get me wrong, experts are and will still be required in many cases, but the point still stands. An example? Everybody owning property should use some form of legal entity to own/manage that property. Why? Because in its simplest form (a trust) it is literally cost-free, and brings several benefits out of the gate (no probate on death; legal separation between trustee and beneficiary; etc). For slightly more specific needs, an LLCs or other similar vehicles also provide great benefits (although require tax reporting, and some state and local tax to be paid each year). And these tools shouldn't be expensive. Not for most people. In my recent experience, I have been dealing with the structure of a land trust to facilitate real estate transactions (using the Blockchain to record these transactions - before you say anything, we're not crypto fanatics, the crypto part is actually quite straightforward and not too crazy like many projects out there). We are a startup, and we invested a significant chunk of our initial funding in fees (legal and otherwise). We intend to open source most of our outcomes eventually, and hope that MOST people will be able to actually benefit from this, instead of spending several orders of magnitude more to have it done the old way. In that regard, the "setting up an LLC in 10 minutes for $70" is exactly how these things should be. (again, provided that you belong to the "most cases" category). All in all, I'm really happy that this is happening. As a side note, if you have experience with trusts and LLCs used for real estate investment, I would be very happy to chat with you - I come from the IT world (Amazon, etc) and still have a lot to learn from experienced people.

JAdamMoore 9y ago

This is stupid. California is the worst tax choice for everything.

dx034 9y ago
And yet it remains one of the top destination for start-ups. Which indicates that getting rid of taxes and regulation (which states/countries do to get more business) can bring business in the short-term (companies forming subsidiaries and channelling business) but doesn't help the economy in the long term. If you have the right environment for companies to form, higher taxes don't destroy that. Sweden also appears to be a good example, high taxes and stricter regulation (partly through the EU) and still a very active start-up scene.
- carlmr 9y ago
  Sweden offers more benefits for it's taxes though. I think California is only attractive because of the SV hype.
  - dx034 9y ago
    Most of those benefits are the safety net you get if your startup fails. I think the main benefit for a startup is having similar companies close by.
    - carlmr 9y ago
      Safety net not only if your startup is failing, but also while you're starting out, money to start your startup, amazing public transport, a functioning public education system which gives you employees that don't need the highest pay to service their loans, ... the list could go on for a long time.
- closeparen 9y ago
  There is practically zero state-level regulation that could pose a significant challenge to a tech startup, and tech startups are not really in the business of generating taxable profits either.

bitrazor123 9y ago

If the company is worth something, 70 or or 200 isn't much apart. But if it isn't than even a 70 USD is a baggage. I liked the 10 minute part though.

JohnnyHero 9y ago

WHY OH WHY would anyone form a corporation in California? Or live or do business in a Communist State?

deleted 9y ago

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dsfyu404ed 9y ago

I fail to see the benefit of a California LLC over an LLC in one of the other 49. It seems to me like choosing CA over some state with less onerous taxes and is like loading a gun and pointing it at your foot. If you wind up doing business that wouldn't be subject to CA taxes then the CA taxes on that would be money down the drain.

dmh2000 9y ago

might want to look at the advantages of other states, Nevada for instance. You can start you LLC in any state. doesn't have to be where your business is located

Cshelton 9y ago

Yeah, I don't know about this advice. If you are by yourself, starting a company, just go register a d.b.a (doing business as) at your local courthouse. And yes, a CPA will cost you money, but it is something you must have right and is worth the cost. By having a CPA, you will avoid falling into a situation where you end up paying a fine, or have unexpected fees/taxes, or, more often than not, the CPA will actually show you how to structure/operate in a way that will SAVE you taxes and fees. If you are going into a partnership or S/C Corp with different owners, than the money spent on a lawyer as well as the CPA is very much worth it. Save yourself down the road and spend the money now to do it right.

joshuaheard 9y ago

This blog lists the steps to take to get a corporate file number issued from the state. It is only a subset of the steps required to fully form a corporation. If you want to form a corporation yourself, there are many books on Amazon that can walk you through the entire process.

gregpilling 9y ago

You could also use something like ZenBusiness which is free https://www.zenbusiness.com/pricing https://www.zenbusiness.com/pricing . They are a startup out of Austin TX.

petesalty 9y ago

I've never really understood the desire to "save" on lawyer costs up front. Lawyer money is the cheapest money you'll ever spend, if you use it right. Having a lawyer set up your company correctly from the start is not expensive. Where it does get expensive is when you try to get investment, or bought or some other event and they have to spend months unraveling the gigantic mess you've made by doing all the legal yourself based on some blog posts you read. To save on costs, don’t go to a big firm, they are expensive. Ask around and find a solid boutique firm that specialises in your area. They will often do some kind of deferment if you are really small, although there’s usually a retainer. Get it done right, the first time, and you won’t have to spend money on it again. This applies to anything legal; incorporation, contracts, employment agreements, licences, etc.

w0mbat 9y ago

Dealing with the California Franchise Tax Board for a single member LLC ever afterwards is a pain. You need to file a 568 with them every year, on paper even if you e-file your CA state taxes, which includes the same data. You need to pay them $800 every year through their terrible website and its Web Pay system. Just getting an account on their website involves them sending you a magic access code in a letter which takes a week and if it doesn't work you have to start again and wait another week. If you ever forget to file something on time they fine you and charge you interest, and threaten to suspend your LLC. I wish I'd just filed a "doing business as".