What’s the benefit to the business of that $800 fee? Why is it almost 4 times more than Delaware? Do I get a nice engraved plaque or something? I am being serious: WHY does it cost $800 just to exist?
Doing business in California: both local and foreign LLCs doing business in CA pay it.
> Why is it almost 4 times more than Delaware?
Why shouldn't it be?
> WHY does it cost $800 just to exist?
You can do business as a sole proprietor or general (or limited, but not limited liability) partnership without the franchise fee. You are paying for the right to do business in CA with a liability shield. The potential value to you (and cost to the public) of such a shield, all other things being equal, is greater in a bigger market. California has more than 30 times the population and 40 times the GDP of Delaware.
But yeah, there’s really no valid reason other than the fact that California can get away with it.
It's simply a bad policy to start aspiring small businesses in debt. $800 isn't much to many of us on here but it is for a lot of people that want to be entrepreneurs in different fields from different backgrounds. Most businesses have other startup costs as well.
California already has the highest state income taxes. The privilege of doing business here is already accounted for. The franchise tax fee is just a bad policy and it's regressive.
And, so, they start businesses as sole proprietorships, or general or limited partnerships, and reorganize as LLCs or corporations once they've proven the idea. They are exposed to more (and the public exposed to less) risk of unmet business liability, but they can still run a business.
We always see entrpreneurs praised for taking risk, why are we hearing so much complaint that California charges for the privilege of offloading risk on to the public?
Or simply get an LLC from another state. Seems like there are states (Utah?) where there is no annual fee/tax.
I believe you only need a CA LLC if you hire employees in CA.
But no state allows you to register any entity for free. Lowest I’ve seen is South Dakota at $50 per year with no other tax on receipts.
California has a pretty progressive income tax. It's the highest at the top income bracket (> $1 mil is taxed at around 13%), but it's significantly lower at the low end than many other states including Alabama, Arizona, Connecticut, Kansas, Maine, Maryland, Minnesota, New York, Oregon, Rhode Island, Vermont, West Virginia, Wisconsin, and DC.
I'd be willing to bet that if you adjusted the brackets for cost of living, CA is taxing the poor more than those other states are.
Why bet when you could actually look up the figures yourself? California has a very progressive income tax with more brackets (ten) than other states, starting at 1% for the lowest bracket. Meanwhile North Carolina charges a flat 5.75% and Wisconsin's lowest income tax bracket is 4%.
Ask Detroit how that worked out for them.