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LLC in CA or VA? Multistate Consulting Question

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  • LLC in CA or VA? Multistate Consulting Question

    Am taking a sole prop to LLC (being taxed as an S-corp) and need to decide if I want the LLC to reside in VA or CA. Here's the background:

    I live in CA, but I spend half of my physical working year in Northern Virginia.
    I have 3 employees in CA, all of whom work out of their house in CA. The work is 100% in support of those clients in VA.
    The rest of my workers are 1099, and live all over the US. 2 of which I will be converting to employees - they live in MD and FL, and do work physically 50% of the time in Northern Virginia.

    My clients are Fortune 1000 tech firms. The parent HQ is in CA for most of these firms (Silicon Valley), but I never meet them or do work for them. Instead, my firm works with their government sales and marketing teams, all located in Northern Virginia (this is true for 100% of my clients). 90% of the time, the groups that approve our SOWs and contracts reside in Northern Virginia. They approve the SOW, and then send it to CA to be processed as a PO. In some cases, the POs read "Bill to CA, Ship to VA". In some cases not. But in all cases, our work is directed, accepted and approved by the Northern Virginia teams.

    SO...I am thinking I can set up my LLC in Virginia to escape the HORRIBLE LLC taxation fees ($800+1.5% receipts) in CA.

    Yes? Thoughts? Am I missing something?

  • #2
    Yes, you need to consult with an accountant or attorney to determine the best place to incorporate, and you'll have to register with the Secretary of State (I think) in each state in which you do business. Frankly, mot corporations file in Delaware because it offers the most protection, and best tax breaks, from what I hear. Have you checked out Nolo Press' book on business entities? It will give you a lot of info, and will give you enough info so that you're educated for when you consult with an attorney or an accountant, so you won't have to pay them to educat you.
    I am not an attorney, and don't play one on TV. Any information given is a description only and should be verified by your attorney.

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    • #3
      You definitely need to talk to a lawyer. I think it is likely, based on your summary, that both California and Virginia would take the position that your LLC needed to be qualified in that state even if your LLC was formed somewhere else.

      I typically don't agree that a closely held business should be formed in Delaware unless there is a specific need to do so. Their entity statutes are definitely "state of the art" and their courts are well suited to things like shareholder derivative suits, but those are things that a single-owner business does not normally need to be worried about. A business that forms there is normally just adding one more state to the places it must deal with. For large corporations that is no big deal but for a small business it is just one more government to be concerned with.

      You also need to talk to an accountant. More important that qualifying to do business is where you will be paying taxes, fees and other costs, including things like income taxes, employment taxes and worker compensation insurance. In large part, those are determined by where the work is performed but you need to have an accountant that understands multistate taxes and the rules of apportionment that may come into play.
      David K. Staub (www.illinoisbusinessattorney.com)
      Forum posts are not legal advice, are for informational and educational purposes only, and are not a substitute for proper consultation with legal counsel.

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