A Cheap
LLC May Not Be An Inexpensive LLC
AVOID
ONLINE LLC PITFALLS
November
21 , 2011
BEFORE FORMING AN LLC WITH AN ONLINE
SERVICE, MEET A LOCAL ATTORNEY FOR FREE.
THE CHEAP LLC YOU ARE THINKING OF BUYING
FROM AN ONLINE SERVICE MAY NOT BE THE MOST INEXPENSIVE OPTION
AVAILABLE.
•
Avoid spending
HUNDREDS OF DOLLARS PER YEAR for
registered agent services.
•
Get ALL REQUIRED DOCUMENTS drafted
and filed, not just the documents the service is selling.
•
Find out how you will be taxed NOW,
not when you file your income taxes in NEXT
YEAR.
•
Learn how to delay the $800
minimum franchise tax until 2013.
CHEAP
VERSUS INEXPENSIVE
There
are a lot of low-priced LLC options online that offer discounted
LLC formation. While finding a reasonably priced LLC is a laudable
way to start or continue a business on a budget, a cheap LLC may
not be an inexpensive LLC. There are a lot of possible pitfalls
you will want to avoid when forming an LLC.
REGISTERED
AGENT FEES
The
sellers of cheap LLC documents will often tell you a registered
agent needs to be listed for every LLC. This is true. What they
do not tell you about are all the free options for naming your
registered agent. Instead, the online LLC formation business offers
to act as your agent for anywhere from $99 to $199 per year, which
may cost thousands of dollars over the life of your LLC.
INCOMPLETE
FORMATION
In
an effort to reduce LLC formation costs for those seeking an economical
LLC formation, many unlicensed, unbonded businesses advertise
heavily online offering low-priced LLC document preparation and
filing. BEWARE! Choosing a $25 LLC formation may only provide
part of the LLC formation process, usually just the filing of
Articles of Organization with the Secretary of State. While the
filing of articles is the first step in forming an LLC, there
are several more steps the bargain LLC company may not tell you
about. You will not actually receive the LLC protection you are
hoping for unless all the legally required documents are drafted
and filed.
INCOME
TAXATION
Not
every LLC is taxed in the same way. If you plan to be the only
owner of the LLC, your cheap LLC will most likely be disregarded
for purposes of state and federal income taxation, subjecting
you to SECA self-employment taxes of approximately 15% of each
dollar of net profit you earn. Since no online service can legally
provide you with income tax advice, these online services will
talk about the tax advantages of an LLC may
provide and not about the tax advantages your LLC will actually
provide. The time to find out exactly how your LLC
is going to be taxed is now, not when you file your tax returns
in April 2013.
OUT-OF-STATE
FORMATION ADVANTAGES
Some
online LLC formation services push out-of-state formations. There
can be tax advantages derived from forming a Nevada LLC, Wyoming
LLC, or Delaware LLC. However, an out-of-state LLC may also drastically
increase the filing fees and franchise taxation you will pay upon
formation and annually. These increased fees and taxes may cost
more than the income taxes saved. Only a licensed professional
will is legally allowed to advise you when out-of-state LLC formation
is appropriate and advantageous.
DEFERMENT
OF FRANCHISE TAXATION
Many
sellers of online LLC formation services sell LLCS exclusively.
Very few of these sellers will inform you at the point of sale
that you will owe a minimum of $800 in California Franchise Taxes
within a couple of months of formation, even if you form a Nevada
LLC. There are alternatives providing for equivalent limitation
on liability and similar (usually better!) tax advantages without
the need to pay the $800 minimum franchise tax until April 2013.
CONCLUSION
You
and your business deserve better than the LLC online services.
The right attorney can provide you with LLC documents and services
superior to that of any online LLC service at a lower total cost
to you.
CONTACT
ME TODAY TO SCHEDULE A FREE CONSULTATION AND LLC REVIEW.
Warm
Regards,
Michael J. Leonard, Esq.
Attorney at Law
San Diego Corporate Law
Find me on Facebook: http://www.facebook.com/SanDiegoCorporateLaw
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