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Opening a Delaware LLC for business in California

Asked by: Peter  — 17 March, 2011

I have a question … To operate a real estate investing business in CA (Los Angeles County), I heard we should do a Delaware LLC (not a CA LLC for protection plus CA LLC annual tax fees are too expensive)? So, if we do a Delaware LLC, what else do we need to do in Los Angeles to actually operate our business in L.A. and to open a business checking account? Meaning, do we need to obtain “Foreign Qualification” to operate business in CA and what else do we have to register for in CA to do business?

Answered by: admin  — 17 March, 2011

Dear Peter,

There are several advantages of a Delaware (or a Wyoming or Nevada) LLC over California, not the least of which is that doesn’t take over two months to form. However, avoiding the unreasonably high California “franchise tax” charged annually to all businesses is not one of these advantages. The rules are that if you “do business” in California, even if your company is formed out of state, you have to register with the Secretary of State in California (that’s the “foreign qualification you mention). Once you register, you get slapped with the annual $800 tax. So there’s really no avoiding it.

All that said, I recommend you look into forming an LLC in Wyoming (a very business-friendly and cheap state) and then registering it in California. This would enable you to start doing business within less than a month and also get the protection of favorable Wyoming business laws. Take a look at our comparison of WY, NV and DE companies.

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