Incorporating LLCs & Registering When Out of State

3 Replies

I live in California, but have two properties out of state under my name. I'm wanting to move them to LLC(s), but getting conflicting answers from CPA and lawyers. Couple questions:

* Should the LLC(s) be incorporated in CA or out of state, and do they need to be registered in whichever state I don't incorporate them in? What are the incorporate fee and tax implications?

* Do you really need 1 LLC per property, or is two fine?

    @Spencer Kier

    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 likely be deemed to be "doing business" in California and therefore likely 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 likely 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 may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property.

    This article goes into a lot of the considerations about whether to form an LLC or not: https://www.mmpph.com/wp-content/uploads/2019/04/May-2019-newsletter.pdf

    Be sure to tell your accountant that you may 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. 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.

    @Spencer Kier

    In general, you either have to create your LLC in the state where you do business or register the foreign LLC to do business within that state.

    As a CA resident, you have to pay $800 annually to CA if you are a managing member of the LLC.

    1 LLC per property is overkill, imagine you had 10 properties and 1 LLC per property, that means you have 10 bank account numbers, 10 checkbooks, 10 CA LLC tax returns.