All Forum Posts by: Christopher Mendoza

@Steve Hyduchak 

Hey Steve. I just wanted to chime in because if you don't have passion for the law, it is best to pursue something you are passionate about. As a practicing attorney that has been practicing law since 2009, I have to admit that some of my former classmates are struggling with understanding their decision to pursue law. Many of those questioning their legal pursuits are (1) chained to practicing law because of law school debt, (2) don't know what else to do, or (3) feel as if it is too late to change careers. Don't be like one of these people. If you love the law, continue with it. Some of my friends truly enjoy their careers. If you don't (and law school was the path of least resistance), then go with something else. 

I originally worked at a Vault 100 law firm (with offices in China, throughout the US, and London), my classmates (with similar jobs) and I felt as if we were going to be doing groundbreaking work. The reality was that we were stuck in our offices (1) cancelling dinner dates, (2) rescheduling anniversary dinners, (3) sleeping in our offices, or (4) getting fatter, balder, and more depressed because you are working around-the-clock to check a 100 page document for misplaced modifiers or subject-verb disagreements. I was able to tell my family about the deals I worked on, but a lot of my work and that of juniors consisted of simply doing replacement of defined terms, document review, etc. As you continue in your legal career, you start getting more substantive work. Which is nice and rewarding, but by that time you have gone through a few years of destroying friendships, ignoring family calls, etc, for the almighty billable hour. 

Sure, there is a respite every now and then, but you never fully enjoy the calm. During that respite, you are worried because you have a billable requirement, and you quickly realize that you need to bill to survive.  I can probably go on and on about big law, but the reality is that "you should do what you want to do." That is where you will find true happiness. 

Admittedly, it was only because of the big firm gig that I ended up at a nice boutique law firm doing hedge fund formation work. I am at a point where I can provide advice to clients with confidence on hedge fund formation, registration, and compliance. It is nice and enjoyable to be at this point of my legal career; however, I still dabble in real estate investing because there is an entrepreneurial fire in some of us. And that fire may be the reason for you questioning whether law is for you and pushing you towards taking on your own endeavors.  Best of luck. 

Thanks for this information. Beyond making you look like a more impressive borrower, do you feel like it (1) helped answer questions before they were asked or (2) did officer ask more questions because of the form?

@Chris Martin  I don't think we are far apart. And, I definitely see what you are saying. I think the key language is "actively engaging".

I would find it very easy to defend the argument that being a silent investor (simply a member) is not "actively engaging," unless the LLC is member-managed and you are the managing member. In the Providence bank example, it depends on what type of activity you are doing as a member. If you have a 1% ownership, but satisfy the "actively engaging" criteria, there is an argument that the fee applies. Let me toss out a scenario, you have a 1% ownership, but are also the managing member of the bank. You have authority (and act upon such authority) to fire, hire, take on debt, execute contracts, etc on behalf of the company from California. Although you only have1% ownership, you are actively engaging in transactions in California for the purpose of financial gain or profit. If you buy 1% ownership, and simply become inactive (receive disbursements, etc.), then I would argue you didn't trigger the fee requirement. Here is link from an accounting firm client advisory (see second paragraph under the title "Issue"): https://cohnreznick.com/california-llcs-and-corpor...

To say the very least, I think this law is ridiculous (if I am right) and confusing. One question I am wondering is what is considered "in California." I am curious as to whether the individual needs to have a set amount of time in California to trigger the requirement. 

@Chris Martin I didn't read it that way. Here is the key language (in my opinion) (found under the heading "Doing Business in California"):

California defines doing business as "actively engaging in any transaction for the purpose of financial or pecuniary gain or profit" . . . "An LLC is 'doing business' if any of the LLC's members, managers, or other agents performs activities in California on behalf of the LLC, regardless of where the LLC otherwise conducts business."

If the Mathew does any activity that can be classified as doing business (the example suggests that mere authority to hire/fire and fielding calls is enough) in California for the business, then it must file and pay the annual tax and fee. See page 2, where it states the following: 

LLCs must file and pay the annual tax and fee if any of the following conditions apply, which one of which is:

They do business in California. 

Admittedly, these laws are rarely written to be easily deciphered. They can be complex and mind numbing. 

How about forming an LLC just for that property. With the LLC, you and your partner can be the members (owners) and you can be the manager (person running the LLC). This may work best for the both of you. The operating agreement (which governs the LLC) would govern your arrangement. You can draft the operating agreement to include almost anything under the sun, subject to your state's laws. For example, you can have a provision that requires any expenditure above $X,XXX be approved by the unanimous consent of the members (you and the partner), but that anything below that threshold can be done by the manager (you) (e.g., purchase of fixtures for the house, payment of subcontractors, etc.)

@Patrick Frey Hey Patrick. Welcome aboard. I (and others on here) would certainly consider your first house a flip. Are you focused on SFRs?

@Chris Martin In sum, it is the "doing business" that triggers the $800 fee for the entity, not the owner. Doing business is loosely defined by CA to cover mundane activities as doing business. I am still getting adjusted to this site, so I just copied and pasted my previous entry from above that provides further guidance:

@Nathaniel Busch @Matt Mason

It seems like Nathaniel correctly identified the scenarios under which an LLC will owe the $800 fee; however, it appears that California loosely defines "doing business". This is how California residents that are members of a foreign LLC get hit with the $800 fee. Although @Mathew Deines says that the income will be passive, it appears as if simply hiring a manager and performing a few calls would satisfy the doing business trigger. The California FTB has a sheet for FAQs and Guidance: https://www.ftb.ca.gov/forms/misc/3556.pdf

If Mathew sees himself doing any of the activity described in the examples (see page 4 of the document), then he may be required to pay the $800 fee. 

@Nathaniel Busch @Matt Mason 

It seems like Nathaniel correctly identified the scenarios under which an LLC will owe the $800 fee; however, it appears that California loosely defines "doing business". This is how California residents that are members of a foreign LLC get hit with the $800 fee. Although @Mathew Deines says that the income will be passive, it appears as if simply hiring a manager and performing a few calls would satisfy the doing business trigger. The California FTB has a sheet for FAQs and Guidance: https://www.ftb.ca.gov/forms/misc/3556.pdf

If Mathew sees himself doing any of the activity described in the examples (see page 4 of the document), then he may be required to pay the $800 fee. 

@Nathaniel Busch @Matt Mason 

It seems like Nathaniel correctly identified the scenarios under which an LLC will owe the $800 fee; however, it appears that California loosely defines "doing business". This is how California residents that are members of a foreign LLC get hit with the $800 fee. Although @Mathew Deines says that the income will be passive, it appears as if simply hiring a manager and performing a few calls would satisfy the doing business trigger. The California FTB has a sheet for FAQs and Guidance: https://www.ftb.ca.gov/forms/misc/3556.pdf If Mathew sees himself doing any of the activity described in the examples (see page 4 of the document), then he may be required to pay the $800 fee. 

Hey Josh. Welcome aboard.