Location, Legal Questions

rtchin

 
Hi, I`m in the process of starting my business.  The problem I`m having is that where to actually create the business.  Is there an issue with residing in one state, but having the business reside in another state?
Bear with me, I`m a novice at this....
Here`s the situation.  I live in California.  I`ve been doing small software development/web development projects for a few years now.  I don`t have a business entity, I just get 1099`s from the companies that I do work for and everything goes on my personal tax returns.
I have the opportunity to pick up a large project in Virginia.  I would have to spend 3 days a week there.  I`m not ready to move there so that`s not an option right now.  I want to establish an LLC since this project will be significatnly larger than anything I`ve done before...and the potential for liability greater.
So, do I establish the LLC in California or in Virginia?  If I establish the LLC in California, I would just use my home address or get a mail box at one of the local postal service stores.  But, since the project will require me to have office space in Virginia, do I also need to file something there? 
Or, is the easier way to just file the LLC in Virginia, using the office space that I`ll need to get as the address.  I would be the sole "owner" of the LLC, residing in California.  The LLC will reside in Virginia.
Thanks for any insight.
 
 
 
 

Nuevolution

WOW, It seems like just yesturday I was in your shoes. Ok, here is the deal. How long is your project in Virgina going to last? Is this a long-term? years? If it`s for a few months, not a good approach. But before you decide on registering your LLC becareful.
Here are some Tips and they are based on my experience:
If you live in California, and register your LLC in Virgina, The state will not allow it because one of the board of directors has to physically live in VA which would be your "registered agent". Since it`s only you, then that is not an option because you live in CA. Although there are ways around it. There are companies out there that can register your LLC even if you don`t live in that state, the company you hire to register your LLC can also be your Registered agent for a "small fee".(They provide you with a Virtual office, your Local phone number, they even open a bank account for you, and you even get a physical address) Now keep in mind you are a software company based in california, According to what I was advised, anyone that owns a web design/ web site studio can do business in which ever state they want as long as you don`t decide to open an office in another state other than the one you are registered in. The minute you open an office in a different state you have to register your LLC in the state, which means you will be considered a foreign corp/LLC and will have to pay the state`s incorporating fees and Taxes for that state.So let`s say you have an office in CA and and Office in VA, you would have to pay the state of CA the yearly fee of $800.00(LLC/corp formation)+ taxes, and then you have to pay VA, you need to find out what their yearly fee`s are. Your best bet is, Incorporate in the State that you think you are going to be conducting most of your business in and register it there.use these links and give them a call they will explain to you in detail what I just told you.http://www.mycorporation.com/affiliate. ... d=12001219</A>
Good luck, I had a hard time deciding over CA or Nevada.

rtchin

Thanks Edgar for the advice.  I was actually reading the Virginia State website this morning and saw that you have to reside in that state.
The contract will be in years, so I guess it makes sense to set up the LLC in Virginia.  I think what may help is that I have family in the state, so I can use my brother-in-law as the "registered member".  So the LLC would have to be a two member operation correct?  And how can I say this without being mean....how do I make sure my brother-in-law doesn`t have any ownership stake?  So, I guess the question is, can the "registered member" have 0% ownership stake in the compay? 
If so, how does one accomplish this? ie, how does one specify members of the LLC and their % share or stake in the company?  The LLC form for the State of VA has only one line for "registered agent".  Is this done at the Federal level? 
thanks again for any help!
 

Nuevolution

So why not go for a Full Corp status? I mean if you are going to set up an LLC, why not go the full ride and be a full Corporation. I think it would do you better. What is the purpose of having a Limited Liability Corp? Why not be a C Corp and Claim S corp on your taxes? Which means you are passing down the corporations Earnings unto your W2. Plus, this way, you can set up a board of directors, and remember... Anyone can sit on your board of directors, and just because they sit on your board of directors doesn`t mean they own any part of your corporation ,unless there is an agreement. So you can be the Stockholder (Owner) call me.. 626 205-3829It`s better to explain over the phone than writting it down. 

rtchin

Thanks Edgar again.  I`m actually metting with my CPA this weekend about all of this stuff.  i backed off the corp idea because my CPA initially discouraged it.  of course, this was back when i was grossing less than $20k on my own.  this will be a little different, so i`ll see what he has to say.

Nuevolution

Well, even at 20K you could of formed a corp. First of all, you can start a Corp at any time, there is no rules of how much you should be making to start a corp. The difference lays whether you want to be a sole proprietor structure meaning you have to use your Social Security as your FED Tax ID, or whether you want to separate your personal expenses from your business expenses. Plus, if you are looking to get corporate credit down the road. let`s say you incorporate this year. they will base your business credit on the years you have been in business. So imagine if you would have structured your business as a corp back when, right now you would have had... those many years under your Corporation (Based that you created a business credit profile). Another thing, you could have saved on taxation. Claim everything at the end of the year and pay only on what`s left over after you paid all your business bills. So lets say, you made 20K.. if after paying all the corporate debt you where left with 6K.. That is your Net.. and that is what you pay taxes on. Big Write off Huh?I`m pretty sure your CPA is going to tell you the same.. I went corporate a year after I started, just to start on my Business credit profile. Regards..

davenny

I couldn`t answer your question any better then 
Nuevolution did, great answer 
Nuevolution. 

However, I would like to add one small point.  You do have to claim the
revenue and pay taxes in regards to which state you did the work in. 
So... if you have a client in VA and you go to them, do the work on site,
collect your check and leave.  You have to pay state revenue tax for VA on
that revenue.

This is why it normally does not matter where you register your business if you
are attempting to avoid taxes.  If you working in CA and your clients are
in VA but you do all your work in CA then you have to pay taxes on that revenue
in and for CA.

I hope that made sense, Good Luck

Nuevolution

I couldn`t answer your question any better then  Nuevolution.  However, I would like to add one small point.  You do have to claim the revenue and pay taxes in regards to which state you did the work in.  So... if you have a client in VA and you go to them, do the work on site, collect your check and leave.  You have to pay state revenue tax for VA on that revenue.This is why it normally does not matter where you register your business if you are attempting to avoid taxes.  If you working in CA and your clients are in VA but you do all your work in CA then you have to pay taxes on that revenue in and for CA.I hope that made sense, Good Luck

Yes, of course.. Thanks for the addon

rtchin

thanks for the help guys.  it looks like the best thing for me to do is to set up in VA since i`ll definitely have to be on-site part time there.  for any CA work that i do, i could technically say that it`s being done out of the office in VA, so i`d only be paying VA taxes.  does that sound right?  any work that I do here in CA is usually from my home office, so i don`t need to be on site other than for meetings.
 

markedi

Hi All,
You guys seem to know a lot about LLC`s and maybe you can help me a little.
Can an LLC, with 2 equal members, elect in the operating agreement to distribute expenses to only one member? The LLC is not making any income as of yet, but does generate expenses during the development of property it owns. The LLC is in NJ.


markedi2006-10-14 12:28:16

pepperlegal

What do you mean by distributing "expenses?"  Any income can be distributed as you see fit in an operating agreement.