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Ask YC: Did I make a mistake LLC'ing in my home state?
7 points by hbien on June 18, 2008 | hide | past | favorite | 9 comments
Hi YC,

I'm starting a small online business developing and selling desktop software. I recently filed for an LLC in my home state of California, but I'm starting to wonder if that's a mistake.

Using SearchYC, I found out a lot of people incorporate in Delaware. But I'm not planning on taking any outside investments, this is just a small mom and pop shop.

Other than saving on the yearly $800 fee, I'm not sure what other benefits there are of setting an LLC up in Delaware.

Should I consider changing states? Thanks!



Even if you are incorporated elsewhere, California requires you to register with the State, and pay the $800 fee, if you do business (broadly defined) in the state.

You may also be on the hook for other corporate income or gross receipt taxes for activity in California, no matter where you incorporate.

(See for example this article comparing California and Nevada incorporation:

http://www.pahl-gosselin.com/should-california-businesses-in... )


If you are based in California you end up paying both Delaware taxes and California taxes, you don't save anything by incorporating in Delaware, it's more expensive. Since you don't plan to take outside investment there would be no advantage to a Delaware incorporation. If you later change your mind you can always re-incorporate in Delaware (either due to outside investors' request or for other reasons).


States will apply the home state's laws when matters of business law are to be decided. That means your company will have Cali law applied across the country (kind of, in certain areas).

I wouldn't worry if I was you. You can find a lawyer in California that knows California law more readily than one that knows Delaware. The majority of your legal issues will deal with employees, buying office space, etc. You don't need a Delaware LLC for that stuff. Delaware law won't even apply.

If you are going to take on funding or you hit it big and you are expanding, look at the Delaware LLC. Until then, have fun building your California company.


http://en.wikipedia.org/wiki/Delaware_corporation

theres nothing wrong with incorporating in your home state. there are just extra benefits to doing it in delaware.


It's not really a problem, but if you do need to change states later, it's not all that hard. It takes two forms: one telling California you're leaving, and one telling your new state you're arriving.


Some states have strong LLCs and some states have weak LLCs. It is fine to be an LLC in your home state as long as LLCs really have all the benefits of a normal corporation. If you're not raising investment you're fine with a home state LLC. I think CA has strong LLCs, but I am definitely not a lawyer.


If it's just a mom and pop type thing then it probably won't make much of a different. The point at which it matters is when you plan on (or at least think it may be a possibility) become a medium to large company with external investors, etc.


If you're talking about the $800 because that's the minimum tax your state has on LLCs. You can request to be taxed as a corporation, which gives you another year to pay off that $800.


Read the Article on Vermont. http://news.ycombinator.com/item?id=220245




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