LLC

Okay... here we go...

For those who might not know, the idea behind forming an LLC in the first place (without even taking into account which state) is to create a legal entity that’s separate from you personally. Using an LLC to take title to your real estate CAN have many tax benefits and is intended to shield you from personal liability. You want to own nothing in your own name, yet because you manage your LLC’s assets, you still control everything and retain all benefits of ownership. More on this later.

In regards to taxes, you’re correct. If your business will be done solely in CA and you reside in CA, you will be subject to CA state tax, and will NOT be able to take advantage of WY’s 0% state tax. Even if you decide to START an LLC in WY or anywhere else, you’ll eventually need to register as a foreign corporation with the CA Secretary of State in order to LEGITIMATELY do business in CA. So, NO WY STATE TAX BENEFITS FOR YOU.

As an LLC in CA, you’ll be charged an annual franchise tax of $800 as well as a $20 Statement of Information fee (charged every 2 years) and a resident agency fee (although in CA, you can avoid this fee and use yourself as a resident agent if you don’t mind that your name is on public record). These annual charges apply regardless of whether you are a native CA or foreign corp. registered in CA. If you form an LLC in WY, however, you will also be charged WY’s annual fees, which includes a $50 annual report fee and a resident agent fee. Therefore, you’ll be charged ANNUALLY about $150-200 MORE with a WY LLC registered as a foreign corp. than using only a CA LLC. This does not take into account the initial setup costs, which will surely cost you more, since you obviously need to get things set up in WY in the first place. So, WY SET UP AND MAINTENANCE FEES ON TOP OF CA SET UP AND MAINTENANCE FEES.

Sheesh. So why do it?

I mentioned that another reason people form LLC’s is the liability protection and often, personal privacy. Especially in the current economic environment, people may be extra motivated to sue you if they know you own a building(s). Depending on the reason you are being sued, people often have to go through the laws of the state where you first formed your LLC. Wyoming has extraordinarily strong pro-business laws designed to protect LLC owners, their privacy, and their personal liability. WY laws are much stronger than CA on these fronts, and it’s cheaper to use WY than other states that have similar pro-business laws (notably, NV). The point is that people elect to form WY LLC’s in order to gain the extra privacy and asset protection that a WY LLC affords them. In their eyes (maybe yours too?) it’s worth a few hundred bucks a year to get the added protection of WY State Law. When people see WY LLC, it often discourages people and their attorneys from bringing litigation against you because they know it will cost extra time and money to get around the tough business-friendly WY State laws.

All this, of course, assumes that a) you have personal assets worth protecting (as you can see, it costs money to set up and maintain these entities) and b) an LLC is the right corporate entity for your real estate strategy and needs.

Hope this helps. Let us know what you decide and why.

Best of luck.

That was a mouth full. That is the best example I have seen from a DG member. I have tried to explane this also to others living in Ca.

There is no way around the taxs for CA. But if you have a lot of homes you our holding it would be worth the protection to open a WY. LLC.

You can have your CA. LLC manage a WY. LLC. You will still have two or more LLCs. It can be a lot of money if you are just starting out.

Steve.

That was an excellent explanation of LLC's and related fees.

Thanks Shine 717! Shine on!

Thanks sooo much for explaination of LLC. I am doing a lot of research I too am in CA and want to know what EXACTLY I'm getting into.
Thanks,
MJ