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How to form a California LLC without a lawyer

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Re: How to form a California LLC without a lawyer

#111

Post by brtkdotse »

gojomo wrote: post #58

The article claims as a second benefit of an LLC: > 2. Tax benefits. You can deduct qualified business expenses from the total income of the business. Here’s a simple example: If you spent $1,000 on servers and your website made $10,000, then you’ll only pay taxes on the $9,000 in profit. You don't need an LLC to deduct such expenses. Even sole proprietors can deduct business expenses against business profits.

As a European who also worked a year in the US, it's starling how utterly _byzantine_ everything related to operating a business in the US is. Why in the everloving world would I need a lawyer that should be an extremly simple process? Forming an equivalent to a LLC in the majority of EU is a 5-10 step web form signed online, followed by some waiting and a sub 100€ one-time-fee.

Furthermore, financial literacy also seem very, very low, almost as if the powers to be maliciously wanted to misinform people. "You get taxed on profits, not on revenue" seems like the fundamental axiom of business, yet here it is, present as "this one weird tip the IRS hates". See also "I don't want a raise, it'll put me in a higher tax bracket".

Re: How to form a California LLC without a lawyer

#112

Post by redis_mlc »

giancarlostoro wrote: post #79
PopeDotNinja wrote: post #69

Earlier quoted context omitted.

A single member LLC in California is treated exactly like a sole proprietorship for tax purposes, except it costs you $800 per year. Unless you know you need it, you probably don’t need it. It won’t protect you from lawsuits, you’ll still have to provide personal guarantees on loans, etc. Source: had single member CA LLC and wasted $800/year for a few years on it.

> It won’t protect you from lawsuits, This sounds misinformed. The point of an LLC as far as I have always understood it is that if someone sues your company they cannot take your personal assets as collateral but only that which belongs to the company. If someone sues you, you can lose a crappy small LLC or would you rather lose your home as part of a settlement cause somebody is a monster. Feel free to correct me i…

It's a misconception.

Re: How to form a California LLC without a lawyer

#113

Post by PopeDotNinja »

giancarlostoro wrote: post #79
PopeDotNinja wrote: post #69

Earlier quoted context omitted.

A single member LLC in California is treated exactly like a sole proprietorship for tax purposes, except it costs you $800 per year. Unless you know you need it, you probably don’t need it. It won’t protect you from lawsuits, you’ll still have to provide personal guarantees on loans, etc. Source: had single member CA LLC and wasted $800/year for a few years on it.

> It won’t protect you from lawsuits, This sounds misinformed. The point of an LLC as far as I have always understood it is that if someone sues your company they cannot take your personal assets as collateral but only that which belongs to the company. If someone sues you, you can lose a crappy small LLC or would you rather lose your home as part of a settlement cause somebody is a monster. Feel free to correct me i…

If you’re at the level you’re just starting out, there’s a good chance your home is your biggest asset. Forming an LLC won’t let you borrow money with no collateral, so there’s a good chance your gonna have to expose yourself to personal risk. If you have to put your home up as collateral, an LLC may not give you much.

My personal experience was that banks will start treating your LLC as an entity that isn’t an extension of you when you start getting up to a few million USD in revenue. Then you are likely to have assets like accounts receivable, signed contracts, inventory, etc. I may be wrong here, as I didn’t get to that level, but I remember conversations ending with “we can help you when you’re making 3 to 5 million.”

Re: How to form a California LLC without a lawyer

#114

Post by dragonwriter »

PopeDotNinja wrote: post #69
gojomo wrote: post #58

The article claims as a second benefit of an LLC: > 2. Tax benefits. You can deduct qualified business expenses from the total income of the business. Here’s a simple example: If you spent $1,000 on servers and your website made $10,000, then you’ll only pay taxes on the $9,000 in profit. You don't need an LLC to deduct such expenses. Even sole proprietors can deduct business expenses against business profits.

A single member LLC in California is treated exactly like a sole proprietorship for tax purposes, except it costs you $800 per year. Unless you know you need it, you probably don’t need it. It won’t protect you from lawsuits, you’ll still have to provide personal guarantees on loans, etc. Source: had single member CA LLC and wasted $800/year for a few years on it.

> A single member LLC in California is treated exactly like a sole proprietorship for tax purposes,

No, it's not; both for federal and California tax purposes, a single-member LLC chooses whether to be taxed as a corporation (i.e., separately) or as a “disregarded entity” (directly on the owners taxes as for sole proprietorship of the single member is an individual, on the owners taxes as a corporate subsidiary or division if the single member is itself a corporation.)

> It won’t protect you from lawsuits

Yes, it does mean that, absent the conditions for piercing the veil which apply just as they would to any corporation, you are protected from liability for the liabilities of the company. That's the LL in LLC. If you properly observed the formalities of LLC operation, it does protect you.

> you’ll still have to provide personal guarantees on loans, etc.

Well, yeah, if you have a baby business that has no evidence of being credit worthy and no way to secure it's debts, it'll need some guarantee of payment before people will extend it credit. That's kid of obvious—why would someone extend credit to an entity with no demonstrated ability to pay with no one else on the hook?

Re: How to form a California LLC without a lawyer

#115

Post by dragonwriter »

poulsbohemian wrote: post #91
giancarlostoro wrote: post #79

Earlier quoted context omitted.

> It won’t protect you from lawsuits, This sounds misinformed. The point of an LLC as far as I have always understood it is that if someone sues your company they cannot take your personal assets as collateral but only that which belongs to the company. If someone sues you, you can lose a crappy small LLC or would you rather lose your home as part of a settlement cause somebody is a monster. Feel free to correct me i…

I am not a lawyer, but I've been in business long enough and have been through enough legal issues to know that forming an LLC isn't sufficient to keep you from getting sued personally or having the corporate veil pierced if someone wants to come after you. In this regard, the parent posters are correct - there may be good reasons for you to form an LLC, but legal protection is a grey area.

> having the corporate veil pierced if someone wants to come after you.

The creditor wanting to pierce the veil is, unsurprisingly, not a sufficient legal condition for piercing the corporate veil, otherwise corporations and LLCs (not just California and not just single-member) would be worthless.

Of course, a sloppily-run LLC is more likely to result in piercing the veil, and a single member LLC that the owner views as a maintenance free magic shield is particularly likely to be sloppily run.

Re: How to form a California LLC without a lawyer

#116

Post by eaenki »

brtkdotse wrote: post #111
gojomo wrote: post #58

The article claims as a second benefit of an LLC: > 2. Tax benefits. You can deduct qualified business expenses from the total income of the business. Here’s a simple example: If you spent $1,000 on servers and your website made $10,000, then you’ll only pay taxes on the $9,000 in profit. You don't need an LLC to deduct such expenses. Even sole proprietors can deduct business expenses against business profits.

As a European who also worked a year in the US, it's starling how utterly _byzantine_ everything related to operating a business in the US is. Why in the everloving world would I need a lawyer that should be an extremly simple process? Forming an equivalent to a LLC in the majority of EU is a 5-10 step web form signed online, followed by some waiting and a sub 100€ one-time-fee. Furthermore, financial literacy also s…

That’s not even true. Aside from the U.K. and Estonia, I can’t think of an European country where 1) it costs less than $1K to incorporate 2) you can do it online 3) You can DIY

Italy, Germany and SwitzerlanD just to pick 3 I’m familiar with, are nothing like U.K./Estonia

On the other hand incorporating a C Corp in Delaware costs between $89 and $399 and you can do it online by yourself

Re: How to form a California LLC without a lawyer

#117

Post by simplyinfinity »

eaenki wrote: post #116
brtkdotse wrote: post #111

Earlier quoted context omitted.

As a European who also worked a year in the US, it's starling how utterly _byzantine_ everything related to operating a business in the US is. Why in the everloving world would I need a lawyer that should be an extremly simple process? Forming an equivalent to a LLC in the majority of EU is a 5-10 step web form signed online, followed by some waiting and a sub 100€ one-time-fee. Furthermore, financial literacy also s…

That’s not even true. Aside from the U.K. and Estonia, I can’t think of an European country where 1) it costs less than $1K to incorporate 2) you can do it online 3) You can DIY Italy, Germany and SwitzerlanD just to pick 3 I’m familiar with, are nothing like U.K./Estonia On the other hand incorporating a C Corp in Delaware costs between $89 and $399 and you can do it online by yourself

In Bulgaria it cost me 50 euros to incorporate using a service :D

Edit: yes, it's not entirely online, but it takes half a day to complete

Re: How to form a California LLC without a lawyer

#118

Post by markvdb »

eaenki wrote: post #116
brtkdotse wrote: post #111

Earlier quoted context omitted.

As a European who also worked a year in the US, it's starling how utterly _byzantine_ everything related to operating a business in the US is. Why in the everloving world would I need a lawyer that should be an extremly simple process? Forming an equivalent to a LLC in the majority of EU is a 5-10 step web form signed online, followed by some waiting and a sub 100€ one-time-fee. Furthermore, financial literacy also s…

That’s not even true. Aside from the U.K. and Estonia, I can’t think of an European country where 1) it costs less than $1K to incorporate 2) you can do it online 3) You can DIY Italy, Germany and SwitzerlanD just to pick 3 I’m familiar with, are nothing like U.K./Estonia On the other hand incorporating a C Corp in Delaware costs between $89 and $399 and you can do it online by yourself

In Belgium, starting an llc will set you back: - about 90€ for registering yourself individually as an economic operator - about 275€ in state fees for the llc - 50€ for activating your VAT number - about 1000€ excluding VAT in legalised robbe^^^notary fees

In all, this is about 1400€ excluding VAT for getting started, excluding accountant or fiscal adviser fees.

Then there is the yearly social contribution of about 350€, even with zero turnover, and more, before you have booked your first cent of revenue.

Re: How to form a California LLC without a lawyer

#119

Post by messe »

eaenki wrote: post #116
brtkdotse wrote: post #111

Earlier quoted context omitted.

As a European who also worked a year in the US, it's starling how utterly _byzantine_ everything related to operating a business in the US is. Why in the everloving world would I need a lawyer that should be an extremly simple process? Forming an equivalent to a LLC in the majority of EU is a 5-10 step web form signed online, followed by some waiting and a sub 100€ one-time-fee. Furthermore, financial literacy also s…

That’s not even true. Aside from the U.K. and Estonia, I can’t think of an European country where 1) it costs less than $1K to incorporate 2) you can do it online 3) You can DIY Italy, Germany and SwitzerlanD just to pick 3 I’m familiar with, are nothing like U.K./Estonia On the other hand incorporating a C Corp in Delaware costs between $89 and $399 and you can do it online by yourself

Just chiming in: it's possible to do all of that in Ireland.

Re: How to form a California LLC without a lawyer

#120

Post by withinboredom »

dragonwriter wrote: post #115
poulsbohemian wrote: post #91

Earlier quoted context omitted.

I am not a lawyer, but I've been in business long enough and have been through enough legal issues to know that forming an LLC isn't sufficient to keep you from getting sued personally or having the corporate veil pierced if someone wants to come after you. In this regard, the parent posters are correct - there may be good reasons for you to form an LLC, but legal protection is a grey area.

> having the corporate veil pierced if someone wants to come after you. The creditor wanting to pierce the veil is, unsurprisingly, not a sufficient legal condition for piercing the corporate veil, otherwise corporations and LLCs (not just California and not just single-member) would be worthless. Of course, a sloppily-run LLC is more likely to result in piercing the veil, and a single member LLC that the owner views…

It still doesn't stop someone from suing you personally. Anyone can sue anyone for any reason. You can try to claim "it was the business's fault" but if you're a single member LLC (with no employees) this is very difficult -- but not impossible -- to prove.

I'm not a lawyer, but this happened to my dad a couple of times in his life. The first time, he lost control of his business and had to declare bankruptcy. The second time, it was dismissed.

Edit: For those curious. Having "policies" written down and following those policies to the letter will save you if you are ever personally sued for something your business does.

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