In which state to register LLC?

5 Replies

I'm currently living in California and would like to start investing near my relatives in Michigan. I'd like to do everything from an LLC for peace of mind - should I register the LLC in California, Michigan, or another state?

Originally posted by @Aaron Gomez :

I'm currently living in California and would like to start investing near my relatives in Michigan. I'd like to do everything from an LLC for peace of mind - should I register the LLC in California, Michigan, or another state?

Where you plan to conduct your business is where you would want to form your LLC. Perhaps your relatives could be part of your LLC since they live Michigan?

It is significantly cheap to form an LLC in Michigan, unlike your state.

There are sometimes benefits to forming your LLC in a state that has business-friendly laws, such as Delaware or Nevada.

Hello,

This is Not Legal or Financial advise by any means.

If the property/properties are going to be in Michigan it might make sense to form a Michigan LLC and if you really want to get fancy the Michigan LLC could be owned by a Wyoming LLC. I would speak with your CPA and attorney to get the best guidance for your situation. You could do a California LLC and then just do a foreign registration of that LLC in MI but spend double costs. Usually, the normal solution is set up an LLC of that state as the property is located in that state. There are a lot of people who also set up a Nevada LLC, Delaware LLC, Wyoming LLC and "domesticate it" in the state of the property via a foreign registration. I would speak to your lawyer and CPA again as they know your situation better and give proper guidance for the correct and best outcome for you. Good Luck!

@Aaron Gomez

California is a sort of beastly state when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will be deemed to be "doing business" in California and therefore subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you will need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will need to pay registration and filing fees in at least 2 states if you don't buy CA property. Be sure to tell your accountant that you now need to file non-resident income tax returns in each state where you own property as well. Most likely the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the "cause of action" arose in that state. So even if you pick a state with stronger protections like WY or NV, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction. California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts. It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC.

*This post is informational only and is not to be relied upon. Readers are advised to seek professional advice. This post does not create an attorney-client or CPA-client relationship.

Originally posted by @Aaron Gomez :

I'm currently living in California and would like to start investing near my relatives in Michigan. I'd like to do everything from an LLC for peace of mind - should I register the LLC in California, Michigan, or another state?

Keep it simple and cheap with the first few SFRs especially if your not sitting on a material balance sheet. If wanting to go the LLC route you create the LLC in the state where you are doing business. That LLC is owned by a Wyoming LLC which is owned by you and partner if any. Wyoming LLC is very cheap and easy to setup and provides for full anonymity (amongst other benefits).

@Aaron Gomez

It is normally advised to create the LLC in the state that you plan to do business in.
It is great that you have family in Michigan. You may be able to avoid paying someone to be a registered agent if you are okay with family members being the registered agent.

However, since you live in California, California deems you doing business within the state and will require you to pay the $800 filing fee with the state.