How many registration do I need to start a software business?

outdateboy · 09-17-2009, 02:21 PM

Hello all,

If i want to start a software business that distributes software online. How many registrations are there? Here is my understanding:

1) form LLC (with the state of California)
2) register with city
3) do i need to register with the county too?

Question regarding city registration:
Does it depend on the location of my development office? My school (Berkeley) offers free incubator office, but I won't use it for more than half a year. I will then move to Oakland. For the time being do I need to register with Berkeley or Oakland? During the period in Berkeley, I will probably work alone and won't be receiving any revenue yet. Do i still need to register with the City?

Thank you so much.
Outdateboy

GlobalWealth · 09-17-2009, 03:31 PM

I would not open an LLC in the State of CA. They are the least business friendly state in the US. Go with NV or WY. Let me know if you need help with this.

outdateboy · 09-18-2009, 12:31 AM

Could you give me examples of how CA is less business-friendly than NY or WY?

Actually, I don't even know if i need to register with the city? When am i required to register with the city? I don't have a store front nor does my business require any license.

Thanks

rdc · 10-09-2009, 07:42 AM

The LLC location issue is more complicated than that.

If you operate your business in CA, and register an LLC in another state, your business will still be subject to CA laws (including those that are unfriendly to business, particularly those related to employees).

Furthermore, CA will still charge the same (relatively high) LLC fees even though your LLC is registered elsewhere, because you are an LLC doing business in CA. Thus, you will end up paying twice (in addition to potential additional taxes, though this is still being debated to some degree).

A corporation would face some operation-specific issues in CA, but the LLC for the most part would not. NV would confer some privacy benefits, but this would probably not apply to you. Thus, CA is probably the best choice for your LLC location.

GlobalWealth · 10-11-2009, 07:02 AM

I respectfully disagree here with rdc. It depends on the nature of your business though. There are many businesses domiciled out of WY, DE, or NV that operate from other states with great success. There is nothing to prevent you from a NV LLC owning an asset in CA. If the CA busines has employees or a physical location, then you would need to register in the state of CA. If the business is web based, you could have the LLC in NV, but of course the income flows to you personally so you would still pay CA tax. But NV offers you the privacy and legal protections CA does not. From a litigation standpoint, it is debatable which state is the proper venue, but you could stipulate in your operating agreement that all litigation must be heard in NV court.

rdc · 10-12-2009, 04:28 PM

Repectfully, I disagree with GlobalWealth in part.

Quote:

Registration of a limited liability company (LLC) with the California Secretary of State (SOS) will obligate an
LLC that is not taxed as a corporation to pay to the Franchise Tax Board (FTB) an annual minimum tax of
$800.00 and a fee based on the annual total income of the entity. The tax and fee are required to be paid for
the taxable year of registration and each taxable year, or part thereof, until a Certificate of Cancellation is filed
with the SOS. (Rev. and Tax. Code §§ 17941 and 17942.)

Any LLC, regardless of where formed, must register with any state in which they conduct any business. This makes the LLC subject to various laws and regulations of that state(s). Thus, regardless of where you form an LLC, if you do business in CA, you will be subject to a minimum $800/yr fee to register as a foreign LLC.

Thus, unless there is an overwhelming need to incorporate elsewhere (or if you plan on having zero contacts with CA), you will not avoid costs associated with business in CA, and you will still be paying registration/annual fees to the incorporation state.

What constitutes "conducting business" is generally a question of law and outside the scope of this particular answer.

GlobalWealth · 10-12-2009, 05:45 PM

Quote:

Originally Posted by rdc

Repectfully, I disagree with GlobalWealth in part.

Any LLC, regardless of where formed, must register with any state in which they conduct any business. This makes the LLC subject to various laws and regulations of that state(s). Thus, regardless of where you form an LLC, if you do business in CA, you will be subject to a minimum $800/yr fee to register as a foreign LLC.

Thus, unless there is an overwhelming need to incorporate elsewhere (or if you plan on having zero contacts with CA), you will not avoid costs associated with business in CA, and you will still be paying registration/annual fees to the incorporation state.

What constitutes "conducting business" is generally a question of law and outside the scope of this particular answer.

this is where the questions of NEXUS occurs. NEXUS is rather grey area, but basically if the business has significant connection with a state, it must register and therefore pay tax there as allocated to the income from that state. The big question is how do you determine NEXUS? As I stated in the previous post, if you have employees and/or a physical location in that state, you have NEXUS and will be obligated to register there. but what about a web based company that operates on servers in Wyoming, with a physical address in NV (registered agent), a bank account at Citibank, with sales generated all over the world? How then do you determine NEXUS? hence the grey area. You really just need to analyze your business and determine if it is right for you to form your LLC there. every situation is different. personally, even if it was determined you must register in CA, I would still form the LLC in WY or NV and just register it in CA. both of those states are much more business friendly and offer you a bit of privacy protection, especially if using a nominee manager.

rdc · 10-12-2009, 06:06 PM

The "nexus" test is simple: he is located in CA, thus an office (realistically the principal office where administrative functions occur) is maintained there, requiring LLC registration, whether foreign or otherwise.

Because an office exists in CA, it is subject to all CA laws since it is doing business there; simply filing an application out-of-state will not allow you to forum shop for laws opposite a jurisdiction in which one conducts business/is located. If director/shareholder privacy concerns are truly an issue, this may be reason to shop around, but given the downsides, this is likely unnecessary for a single-owner business.

I won't go any further into this, but suffice it to say, this is why it is generally advisable that one contact the appropriate, licensed advisor. Incorrect foundational planning can work for a while but may lead to major problems down the road.

entrepreneurrebel · 10-13-2009, 12:09 AM

Quote:

Originally Posted by GlobalWealth

I would not open an LLC in the State of CA. They are the least business friendly state in the US. Go with NV or WY. Let me know if you need help with this.

Globalwealth forgets to mention that if you register out of state you will have to find a registered agent in that state. They will need to be present during business hours for legal issues that may arise. It is possible and can be inexpensive. I have researched but not used nationalregisteredagent com

Globalwealth is correct that CA isn't a business friendly state. NV is the best one but costly in filing fees.

GlobalWealth · 10-13-2009, 04:32 PM

Quote:

Originally Posted by rdc

The "nexus" test is simple: he is located in CA, thus an office (realistically the principal office where administrative functions occur) is maintained there, requiring LLC registration, whether foreign or otherwise.

Because an office exists in CA, it is subject to all CA laws since it is doing business there; simply filing an application out-of-state will not allow you to forum shop for laws opposite a jurisdiction in which one conducts business/is located. If director/shareholder privacy concerns are truly an issue, this may be reason to shop around, but given the downsides, this is likely unnecessary for a single-owner business.

I won't go any further into this, but suffice it to say, this is why it is generally advisable that one contact the appropriate, licensed advisor. Incorrect foundational planning can work for a while but may lead to major problems down the road.

As previously stated, if there is a physical presence in CA, there is nexus and therefore CA registration is required. My point is there are many businesses that operate remotely with no physical presence. It really depends on the nature of the business. For a business without a physical presence in the state where you file your LLC, you will need a registered agent as entrepreneurrebel states. This is usually pretty cheap.

RDC, I sincerely hope you comment in your last paragraph is not an attempt to discredit me. I have partially disagreed with you in some respects, but that does not make your way, the only way. If this was an attempt to discredit me, that is a pretty cheap shot at elevating your firm by lower mine. Possibly I am being sensitive here, if so, I apologize. My point to the original reader was to make sure he explores all possiblities and decide what is best for his business.