LLC not needed for rental property

9 Replies

Hello BP! 

I hope you all are doing great! So a couple of months ago i created an LLC in Cleveland (i live in California), i did so in order to place my rental property and all that. Now that the LLC is created, i decided to leave it under my name and not transfer it to the LLC. Am i going to get penalized for doing so? Can i still keep the LLC? whats the right course of action?

Originally posted by @Alejandro Lee :

Hello BP! 

I hope you all are doing great! So a couple of months ago i created an LLC in Cleveland (i live in California), i did so in order to place my rental property and all that. Now that the LLC is created, i decided to leave it under my name and not transfer it to the LLC. Am i going to get penalized for doing so? Can i still keep the LLC? whats the right course of action?

 Yes, you can keep it. 

There is no penalty. You will have to renew the state registration every year. Very cheap to Renew- $50 to $100.

If you don’t need it, dissolve it. Very easy to do. File a form with State. 

If the LLC is 'doing business in California' it will have a CA Form 568 obligation and must pay the $800 annual CA LLC tax.

California paints 'doing business' with a pretty broad brush. If any of the LLC's managers (including member-managers) are located in CA, generally speaking the LLC is doing business in CA.

It sounds like the LLC has no purpose. It might be best to dissolve it. Consult your CPA/EA and attorney.

@Alejandro Lee if are not going to use it, and it is just going to sit doing nothing for you, then why pay the maintenance fees for it? Do you plan to use it down the road? As @Eamonn McElroy said its a waist from what it seems like and CA does have very broad "doing business as". Talk to your CPA and Attorney and see what the benefit is to you financially and legally. If nothing, then just let it loose. If you already have the LLC and seems like you wanted to have it for Asset Protection purposes, then why not use it, transfer the property into the LLC, get the property out of your personal name, and talk to you CPA about tax advantages for keeping the LLC and transferring the property into it. Know before you dissolve it.

Originally posted by @Alejandro Lee :

@Ashish Acharya do you know if i have to pay california taxes even though I opened the LLC in cleveland?

Generally, iIf the RE is in California, then yes, you'll have to pay California taxes as well as California's LLC franchise tax even though you're using an out-of-state LLC.

Originally posted by @Alejandro Lee :

@James Miller actually, the property will be in cleveland, LLC in cleveland with a registered agent in cleveland as well but the single member LLC (myself) resides in california.

 Unfortunately that's all it takes for California to require you to pay the annual franchise fee.

@Alejandro Lee , the FTB's definition of "doing business" in California (therefore requiring the minimum $800 registration of the out of state LLC) is broad. The link below leads to FTB examples (page 4) of how the FTB defines "doing business." Basically, you are "doing business" in California under the FTB's interpretation if you direct a management company from California, use a California address for tax filings, and/or maintain a California bank account. If you can avoid fitting into those examples or into the broad definition of "doing business," maybe you could have an Ohio LLC while being a California resident and avoid California taxes. Also, if your LLC doesn't own anything, there might not be any "doing business" that would require the registration in California.

https://www.ftb.ca.gov/forms/misc/3556.pdf