The Limited Liability Company (“LLC”) has become the de facto business entity of choice for many small business owners and real estate investors. While it can be easy to set up an LLC on-line, it is very difficult to PROPERLY set up an LLC on-line given the fact that not every LLC is the same and that each state has different requirements and restrictions that need to be taken into account. Here’s just a short list of some quirky LLC issues that could apply in your state.
- California Franchise Tax – An $800 minimum fee/tax on your LLC due each year whether the LLC makes money or not. This applies to your California LLC and any other LLC doing business in California. Now, don’t think doing business in California means what you think it does because if you own a LLC in Arizona and you live in California and call your Arizona property manager while in California you have just done business in California. Send in $800 to the Great State of California.
- Arizona Publication Requirement – After you establish an LLC in Arizona, you are required to post a notice in a newspaper in Arizona that meets circulation guidelines letting everyone who still reads the notice section in the paper know that an LLC was formed and providing the name. For more on the AZ publication requirement, click here.
- Tennessee Franchise and Excise Tax and the FONCE Exemption – Tennessee has a franchise tax that will apply to your LLC that is based on the net-worth of your LLC. There is a common exception to this tax called the “FONCE” (Family Owned Non-Corporate Entity) exemption that will apply if the LLC is owned by family members and has passive income. For more on the FONCE Exemption, read Mark’s article here.
- Nevada State Business License – Yes, that’s right, a state business license is now required in Nevada for LLCs. Business licenses generally are required at the City or local level and run $20 to $100. The Nevada business license is required of LLCs and is $500 annually. Yes, they have a budget deficit in Nevada. For more on the Nevada Business license, click here.
- California Statement of Information – The California Statement of Information needs to be filed within 90 days after your LLC is established. This is in addition to and after your Articles of Organization are filed. For more information on the California Statement of Information, click here.
- New York Publication Requirement – An LLC in New York must publish its name and details in a newspaper in the county of the principal place of business the LLC. While Arizona and a few other states have similar requirements, only New York papers can charge you $500 or more for this.
- Texas Franchise Tax Form Filing and Information Report – Texas has a franchise tax that applies to gross income in an LLC. The good news is that Texas has an exemption such that no tax is due if the revenue is passive and below $1,080,000 for the year. Make sure you file Texas Franchise Tax No Tax Due Information Report Each Year though or your entity will become delinquent.
This list could go on and on but I just wanted to highlight the complexity and nuance that you need to be aware of when establishing a new LLC for your business or investments. Keep in mind, an LLC may not be the best entity for your situation, however, once you know that an LLC is optimal for your situation for tax and asset protection purposes it is critical that it is set up properly so that you don’t end up being delinquent, dissolved, and subject to fines and penalties. Working with an experienced lawyer can help you determine the right entity for your situation and can set it up properly while advising you of the state nuances that may be involved in your situation.