Stop Forming LLCs So Quickly! Especially in California (PSA)

This will be a quick PSA to everyone, including my clients and the general public, about the need to form Limited Liability Companies “LLCs,” especially in California.

LLCs are great legal vehicles to protect your business venture. As long as you properly maintain a set of separate books, separate bank accounts, properly capitalized the entity, and treat it as a separate economic unit, the LLC should afford you a degree of legal protection in the event that something goes wrong, like being sued. In California, they cost little to form but bear an $800 minimum tax per year to maintain, which is costly and cumbersome to a startup or small business.

I believe our environment is so litigious these days that most entrepreneurs are terrified of doing anything without the worry of being annihilated in a lawsuit. There’s certainly a time and place to manage risk, but that typically isn’t right at the start of your business. In the US, with some exceptions, the vast majority can start a business by just simply selling services or products to the general public without any legal entity or formal structure. I actually wrote about it here - https://www.advisere.tax/blog/momentumfirst

So unless your business is growing or has some serious legal exposure that needs to be considered, don’t form an LLC or any formal legal structure. Unless of course you absolutely love spending $800 annually on filing fees in addition to paying for additional tax return filings.

If you’re not sure as to whether or not you need to put a formal structure in place over your business activities, then you should contact us! Hit the big orange button below to reach out.