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Comment by seriousquestion | Hacker News Reader

To wit, CA charges $800 PER YEAR to have an LLC. For many small one person LLCs, that $800 a year makes a big difference. $8,000 over a decade.

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Why was this downvoted by people. Seriousquestion raises a good point. $800 a year is a massive cost. Lets say the llc is a cleaning service, and they are only pulling in $20k a year anyways. Operating as an LLC is 1/20th of their income to do it legally. This is a valid point, and is on topic.

It isn't an $800 charge, it is a minimum of $800 in state tax. For an actual business with $20k in revenue the cost is much lower than $800, maybe zero

Incorrect. I own a single member LLC in CA and very simply must pay an $800 charge to operate. This is a charge completely separate from taxes owed.

I know because for a couple years I didn’t owe any state business taxes and thought I didn’t have to pay the $800. I was wrong and had to back pay those charges plus interest. It sucked.

What you say in the second paragraph seems to confirm what the parent comment says.

It's a fee separate from state business income tax. Possibly deductible, but separate.

You would think so, but it is an $800 charge even if you make $0.

This yearly tax will be due, even if you are not conducting business, until you cancel your LLC.

https://www.ftb.ca.gov/file/business/types/limited-liability...

Can we stop with the hyperbole?

The fee isn't that much for California. I could see it as expensive if it was in a cheaper state. Also, if somebody is only making $20K annually running a cleaning service in California, they need to run it as a sole proprietorship, find another line of work, or move to a different state.

I made $15K in the late 1980s in California while living paycheck to paycheck. I don't see how anybody can live on $20K in 2021. This hypothetical person would make more money working at McDonald's.

For the idiots down voting me:

The California state minimum wage is $13 for employers with 25 or less employees, $14 for employers with more than 25. A person would make more money working full time at a fast food establishment than running a cleaning service if their are making only $20K annually. You would have to go back several years when the minimum wage was less than $10.

I ran a consulting business for years as a sole proprietor. It is a viable operating entity, especially for one person. I also had a business liability policy, which you will also want as a single member LLC. It is actual quite easy to pierce the liability protection that an LLC offers, especially for single member companies because many people intermingle assets and debts, such as when personally guaranteeing a loan. If you injure somebody while on the job or engage in professional malpractice, the LLC shield won't protect you. And finally, fraud; if you are using the LLC as a buffer to commit illegal acts, a court will find the company is nothing more than your alter ego and hold you personally responsible.

If you are a software developer, run your business as a sole proprietor until you are ready to sell your product or hire employees, then convert the business to an LLC. You will still get the first year waiver.

FWIW, as of 2021, the first year’s franchise tax fee is now free: https://www.llcuniversity.com/california-llc/annual-llc-tax-...

(But I agree with you, and would file an LLC in DE or elsewhere, unless I plan on raising funding in which case it wouldn’t be an LLC but a DE C-Corp)

Wyoming. Low fees, no taxes; it trumps DE in every way except investability (and perhaps the ecosystem, but it's getting there fast)

Isn’t the main reason people like Delaware because the corporate law is very well understood? There’s case law going back hundreds of years. What does Wyoming offer that trumps that?

This is correct. That’s why people pick DE.

All limited liability entities doing business in California must pay the franchise tax. Also, the first year waiver is only for domestic companies, those organized in California.

For a California resident trying to escape the expense, you are going to spend more money by creating your LLC in another state.

Good point!

The argument I hear from folks in CA is that people who own LLCs are already rich and they can afford $800. This is exactly the attitude that makes people move out of CA. It is ridiculous taxation and government fees for pushing papers. It would be far better to let people start companies for free and then pay whatever fees after generating $1M revenue. You know, after they're "Rich". SMH.

It also entrenches inequality. Design a system that assumes everyone is rich, poor people can never rise.

As someone not from the US, this aspect of the US has always amazed me. There is huge regulation on business at the state-level, particularly SMEs, but the US has a functioning economy somehow...do the rich just incorporate in Delaware? It is amazing to think that the US has succeeded in spite of significant efforts to fail. Introducing flat fees on business creation is tying a noose round your own neck economically.

You cannot look at this myopically - there are many areas of CA's policies, especially in the 1970's through 90's where the "Silicon Valley" name originates from. There is a lot of inertia from policies - like stopping a massive locomotive - and just because the policies are less steamy, it still takes a lot to stop the train. Labor pool has a magnetic catch-22 effect.

I've incorporated 2 LLCs in the past (not in CA) and it was literally a 10 minute job. Costs $50 one time fee. No recurring fees at all. Mostly online, albeit have to print out a form and mail it to the Dept of Revenue, but don't need to queue up anywhere. Opening a bank account is straight forward and takes 1 day.

There is also a lot of variation from state to state - ironically, the red states have better policies for inequality for businesses. Low regulation in this area helps the "small guy/gal" get their feet wet without much hurdles. I strongly believe in regulation based on thresholds of how large/monopolistic/oligarchic companies get. Regulations should be designed in a way that promotes methodical canopy growth but not completely cover the seedlings that are hatching on the ground.

That’s not ironic, it’s common knowledge.

It's frustrating seeing the rhetorical tricks people pull - "these regulations exist only hurt/harm the rich!" - when common observation shows that no, they just prevent people from becoming rich. The poor have nothing, the rich have more layers than God, so the middle class gets the shakedown.

The $800 fee is a minimum tax for the year, not an arbitrary fee, it is credited against other taxes you owe. To that end, most businesses with employees or substantial sales won't owe anything extra. It is waived the first year in most cases, so it isn't a short term problem for new businesses. There are other business structures for a company besides an LLC if costs like the registered agent, the tax complexity, the minimum franchise tax are an obstacle.

Straight from the horse's mouth: https://www.ftb.ca.gov/file/business/types/limited-liability...

So even if you have no income or a loss, you still have to pay $800 tax. That seems ridiculous. Many have said that the term "tax" is inappropriate and instead should be a fee (which can be tax deductable), but wait! There's more. There is also a LLC fee which is waived for <$250k revenue but increases there after. Note - all this taxation and fees is in addition to state income taxes. Experts also say that the "LLC Fee" should be called "LLC Tax". California has an absurd level of taxation for someone who wants to open "Hannah's Illustration & Painting LLC".

Given how it works in states like Nevada and Arizona ($50 flat one time fee, no minimum LLC tax or fees), California goes on a limb to intentionally make sure your little LLC suffers as much as possible: http://www.incorporatecalifornia.com/callctax.html

This minimum tax is not a separate fee owed on top of the corporate tax. For example California requires S corporations or LLCs electing to be taxed as an S corp to pay a 1.5% franchise tax on income, with a minimum tax of $800

>...$800 PER YEAR to have an LLC.

This franchise tax is required by any type of business entity offering limited liability. Besides a limited liability company, this includes corporations, limited partnerships, and limited liability partnerships. You can avoid this fee if you have a sole proprietorship or general partnership. Additionally, non-profit corporations that have a tax-exemption from the IRS are also exempt from this fee.

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