Avoid LLC Pitfalls
BEFORE FORMING AN LLC WITH AN ONLINE SERVICE, MEET A LOCAL ATTORNEY.
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 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 these sellers 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; this may cost thousands of dollars over the life of your LLC.
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. These advertisers usually just provide for 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.
Not every LLC is taxed in the same manner. 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 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 both upon formation and annually. These increased fees and taxes may cost more than the income taxes saved. Only a licensed professional is legally allowed to advise you as to when an out-of-state LLC formation is appropriate and advantageous.
Deferment of Minimum 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, if not better, tax advantages without the need to pay the $800 minimum franchise tax until April 2013.
You and your business deserve better than the LLC online services. The right attorney can provide you with both LLC documents and services superior to that of any online LLC service at a lower total cost to you.