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LLC or LLP in DE vs CA?

Hi everyone...

Our company sells home automation and audio/video equipment/installation services to mostly residential, but also some commercial customers. 95% of our business is in CA, where our physical office is also located (San Diego).  We MAY do a job here or there in Chicago, Nevada, Denver, but mostly in CA for NOW...hopefully we will grow national over time.  There are only 3 of us now and we have not exactly been set up properly over the last few years of floundering.  I was brought aboard to look into this and change that...to make us a legit company the right way as cheaply and efficiently as possible.  In 12-2008, we filed as an LLC in DE, probably because someone told the founder to do that and he has NO BUSINESS experience.  NOTHING has been done with that LLC since, no fees have been paid to CA, etc... (you see the issue I am dealing with now, hopefully).  Because most of our business is in CA, we will have to pay the $800/yr min to CA, so WHY pay the extra $89 to be incorporated in DE?  We need to save costs everywhere and the extra time/confusion/paperwork/deadlines/$89 to be in DE doesn't make sense to me...am i missing something?  We are also considering just being a LLP in CA because it seems so much easier...why do we need to worry about SHARES right now??  We are basically starting over, trying to rectify and put the past behind us as simply as possible.  As of 1-1-10, we are all going to be equal partners for now and will only operate at a profit going forward ( in other words, we don't forsee any reason to take out debt to go forward, so not considering annual losses a huge problem)? 

HELP and Thanks!

Hillari

Answers

Vikram Malkani
Title: Managing Principal
Company: Malkani Advisory
(Managing Principal, Malkani Advisory) |

Hi Hillari,
A comment on the LP vs LLC decision: A LP needs a general partner, so are any of the three of you prepared to have unlimited liability (or the three of you can create a corporate entity to serve as the general partner, this entity could e a LLC), a LLC has no such requirement. State taxes can discriminate between these types of entities, in PA for example LLCs are not look through entities for state tax purposes, so you will want to research this.

I hope this is helpful.
All the best,
Vikram

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