LLC in CA or DE for flips?

6 Replies

I live in SoCal, and am getting into the biz of doing flips with my partner. We've started an LLC in Delaware, because we heard it was cheap (no lie, it is, and was easy), but I am wondering if we should keep the LLC there or would it just be easier (but more costly) to open one in CA where we plan to do our flips. Thoughts? Opinions?

@Joshua Duvall

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. If you live in California and are also doing business in California, it seems you could do away with any fees and hassles related to DE.

Have you also looked into an S-corp?  It's not always the right vehicle but can be for some people.  

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. Also, the state of formation is likely where internal disputes would be brought among LLC members, so if you and a partner live in CA, you probably want to arbitrate in CA if the two of you had a disagreement. But, that is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you.

*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.

Wow Katie, mind=blown! Thank you for all that information. I won't lie, I needed to read through it twice to make sure I caught all the good stuff you provided. You're amazing.

I have heard of S-Corps, but have done little research into them. I am still new to this whole LLC game, and am trying to learn as much as I can. I am a student of knowledge and love to learn, so that was all super helpful.

It sounds like, we should dissolve our DE LLC and just pay the extra fees to get set up in CA. It would provide us more protection, and just an easier operation all together.

Thank you again Katie!

@Joshua Duvall

Talk with a professional who can advise you personally. Forming in Delaware can make sense sometimes. Forming an LLC for flipping can make sense sometimes too. It depends on too many factors to be able to answer in the forums. Just because I have suggestions doesn't mean what you're doing is wrong; there are pros and cons to any decision that need to be weighed.

*this post does not create an attorney-client or CPA-client relationship. Readers are advised to seek professional advice.

You really shouldn't be asking BP should be first asking your [hopefully investor-friendly] accountant and possibly a real estate attorney. Regardless of what you do, you won't be able to keep CA out of the loop if you're living here and doing business here. They'll get you for the LLC fees regardless of where your LLC is located, so might as well have it based out of here anyway.

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