California Limited Liability Companies
California LLC Option Isn't For Everyone But...
I want to make a confession here. Even though I used to teach (briefly) the Golden Gate University Graduate Tax School class that covered LLC and S corporation taxation, I have very mixed feelings about forming a limited liability company (or an S Corporation for that matter) in the state of California.
Yes, a limited liability company including a limited liability company treated as an S Corporation (which is one of the options an LLC has) reduces the legal and business risks for owners. If you own an LLC that owns a business, automatically, you bear less risk what happens inside the business. Similarly, if you own an LLC that owns real estate, you bear less risk for what happens with property.
A quick side note: The distinguishing feature of a limited liability company, including a California LLC, is this: The owners of the LLC, called members, do not assume liability for debts of the LLC simply because they own interests in the LLC. While this maybe sounds like a small point, entity choices like a sole proprietorship or partnership automatically mean that owners of the business or investment are liable for all the debts of the business or investment.
In a worst case scenario, then, someone who invests in a partnership that invests in a large commercial real estate property may lose everything if the deal goes sour. Similarly, someone who operates a business as a sole proprietorship is liable on a personal level for all of the debts of the sole proprietorship-including those that might arise in catastrophic scenario such as an employee getting killed or killing someone in a work-related accident.
But here's the problem with the California LLC: California levies an annual LLC franchise tax. This tax, which runs a minimum of $800 a year but can quickly rise and become thousands of dollars a year, represents the fee the California charges as an LLC owner for the "benefit" of limiting your liability.
In my opinion, the fee that California charges for this "benefit" is exorbitant. California's annual franchise fee is ten to twenty times what other states charge, for example. Accordingly, the fee is simply too high for many very small businesses and smalltime real estate investors to shoulder. Okay, enough ranting.
For businesses and investors that can afford to play ball in California, I've provided a couple of do-it-yourself limited liability company formation kits. At least you don't have to add insult to injury by paying some professional or online service hundreds of dollars or more for something you can easily do yourself...
California LLC Premium Option: $44.95
The premium version of the California LLC kit goes over the pros and cons of setting up and using a California LLC, explains how to set up an LLC (including your options for expediting the formation process), and describes the business licensing and IRS tax requirements you sometimes have to deal with. Of course, the premium kit also includes sample operating agreements you can use. Furthermore, the premium kit describes how to make elections with the relevant tax agencies (mostly the IRS) that allow your LLC to be treated as either a corporation or S corporation for both federal and state tax purposes.
To acquire the premium version of the California LLC kit, click the buy button here:Purchase and Download
California LLC Economy Option: $34.95
If you need neither the information about nor the instructions for making corporation tax elections for the LLC, you can acquire the economy version of the California kit. Note that the economy kit has everything the premium kit has with the exception of the corporate tax elections material.Purchase and Download