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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

#171

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.

A few counterpoints: - This depends what you are doing with your business. Doing some software consulting on the side and making 10-20k/year from that? You probably don't need it. You have to decide for yourself what your chances of getting sued fare, but for many people, they are zero to negligible. The chances of getting sued go up quite a bit once you start to employ people though. - IANAL, but I get the impressio…

Interesting article about this at https://www.wolterskluwer.com/en/expert-insights/piercing-th....

> "A court will pierce the veil only if a failure to do so will result in an injustice. This requires more than evidence that a creditor will not get paid. It requires evidence that the corporation or LLC was used in some way to perpetrate a fraud or accomplish some other wrongful purpose. For example, if the shareholders or members formed the entity knowing that they were not providing enough start-up capital to satisfy its contractual obligations, or intentionally moved the company’s assets out of a known creditor’s reach so that the debt could not be paid.

Actions such as those may be considered by courts as abusing the corporate or LLC form. For example, an Alabama court pierced the veil of a solely owned corporation that was hired to do construction work on a house. The shareholder testified that the corporation had no money when the contract was made, that she made no attempt to make sure the corporation had enough money to complete the project, and that she and a friend used the corporation’s bank account – which consisted only of the funds from the plaintiff - for personal purchases at jewelry and sporting goods stores, car services, restaurants, and more."

Re: How to form a California LLC without a lawyer

#172
post #143

The absolute horrible thing about forming a Llc in California is the $800 FTB tax, that you have to pay irrespective of wether you have any income or not. This is really discouraging for any individual who is trying to start a business and is unsure of the outcome in the initial years.

Also, it’s on the calendar year, not a rolling 12-month calendar. And it isn’t prorated. File your paperwork in early December? That’s $800 now and $800 in a few months.

Wait until January if you’re close to the end of the year and can afford to hold off.

Re: How to form a California LLC without a lawyer

#173
post #143

The absolute horrible thing about forming a Llc in California is the $800 FTB tax, that you have to pay irrespective of wether you have any income or not. This is really discouraging for any individual who is trying to start a business and is unsure of the outcome in the initial years.

That’s ~$67/mo to stay in business. I don’t see how this can be considered a horrible thing.

When you're a very small business losing money the first few years of operating and California sticks you with an $800 bill on top of local taxes that are also levied regardless of income (business personal property), it's a giant slap in the face that makes you want to move your business to pretty much any other state.

Re: How to form a California LLC without a lawyer

#174
post #143

The absolute horrible thing about forming a Llc in California is the $800 FTB tax, that you have to pay irrespective of wether you have any income or not. This is really discouraging for any individual who is trying to start a business and is unsure of the outcome in the initial years.

That’s ~$67/mo to stay in business. I don’t see how this can be considered a horrible thing.

[deleted]

Re: How to form a California LLC without a lawyer

#175
post #16

You also need to file a California Form 568 tax return with the Franchise Tax Board and pay the $800 annual tax whether or not you have any income, or you get a big fine that increases every month you don't file... Ask me how I know :)

> pay the $800 annual fee whether or not you have any income Really? In the 2 states I've lived in, there is no annual fee for LLC's. I'm curious what the reasoning behind having a fee that large is.

Because governments are monopolies, they can charge monopolistic prices. The only way to not work with them is to physically move your permanent residence. That's a pretty deep moat.

Re: How to form a California LLC without a lawyer

#176
post #175
post #16

Earlier quoted context omitted.

> pay the $800 annual fee whether or not you have any income Really? In the 2 states I've lived in, there is no annual fee for LLC's. I'm curious what the reasoning behind having a fee that large is.

Because governments are monopolies, they can charge monopolistic prices. The only way to not work with them is to physically move your permanent residence. That's a pretty deep moat.

And the worst offenders will take potshots at you on your way out. NY, CA and other states specifically try and extract extra tax revenue from people who said "screw it, I'm out" but didn't do a good enough job documenting how out they in fact were.

Re: How to form a California LLC without a lawyer

#177

Earlier quoted context omitted.

The rental property investors I’ve known usually form an LP with an LLC as the general partner. Both entities will be solely devoted to a single piece of property. The limited partners are often involved in multiple investments. The LP will often contract a sister LLC for services like property management...so the rent checks get written to an LLC that can screw up without putting the real property asset at direct ri…

The examples cited are how the courts pierced the LLC veil to satisfy someone's personal liabilities. This seems like it's unavoidable because no matter how you split it up, the courts will seize your assets to pay that liability - the effect would be the same if the courts just grabbed the owner's stake in the LLC's. Your example is what most people think of - LLC's shielding each other and the owners. I'm mostly po…

That’s why the operating agreement of the LLC should have a charging order protection. It discourages reverse piercing. A charging order protection will allow the LLC to stop distributions to a member who lost such a court case.

In case of an LLC taxed as a partnership the creditor will need to pay the taxes as stated on the K1 but doesn’t receive actual money. Obviously this will make it very unattractive to the creditor to go for a charging order on your membership in the first place.

Re: How to form a California LLC without a lawyer

#178
post #82

Earlier quoted context omitted.

The calculation of business income tax really is that simple... It only gets complicated of you want to make it complicated.

Perhaps I missed it on my annual reads through the instructions, but I cannot recall seeing a statement: "This is the definitive path to figuring your tax." For the personal income tax instructions, that pathway is clear for almost everyone.

Take your business income items, and add those up.

Take your business expense items, and add those up.

Subtract expense from income. Done...

Personal income tax is much more complicated than small business income tax. Large corporations and partnerships are more complicated than small businesses, but those types of businesses want the additional complexity.

Re: How to form a California LLC without a lawyer

#179
post #93

Earlier quoted context omitted.

You clearly misunderstood something because that's not a CA law and that isn't how a consultant or contractor would prove their legal entitys existence to a client.

My guess is that they were trying to shield themselves from the possibility of reclassification via IRS audit.

None of what he said would have shielded his hiring company from the possibility of reclassification in an IRS audit, though it appears he was claiming it was a California FTB issue.

That's not how CA contractor classification law works, nor how the law has ever worked in the past.

Re: How to form a California LLC without a lawyer

#180

Earlier quoted context omitted.

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 se…

> It still doesn't stop someone from suing you personally. It vastly reduces the expected value to them, and thus the incentive, and the expected cost (legal and liability) to you, but no, it's not an absolute shield. > . You can try to claim "it was the business's fault" but if you're a single member LLC (with no employees) this is very difficult Well, yes, but the problem with that isn't “single-member LLC” (for wh…

> but the “you’re” part

Very subtle catch. I meant “you have” but still, I wish I could give you more upvotes.

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