Starting a Business Single person LLC

[zuibos]

Jurisdiction

Massachusetts

Dear Madam/Sir,

I am trying to set up an LLC for my new small business but need to understand the following to be able to make the correct decision.

Here are my concerns:

1) A lot of people have suggested to set the company up in Deleware, being from MA will this be an issue?
2) I know set up wise it is less expensive to set up an LLC in DE vs MA but are there any tax implications, where I am hearing corporate taxes are lower in DE
3) If I set up an LLC in DE and live in MA would that mean all my stationery will need to call out a DE address? Can I still maintain my local MA address?
4) If I do set up the LLC in DE should I be setting up a Bank account there as well so that I can take in all of my payments there or would it be okay to receive payment in MA? How difficult would it be to set up a bank account in DE being that I am from MA?
5) Any idea what I would be looking at for State fees for filing for my LLC certification in both DE & MA and would I be able to do it online or would I require an attorney?

Thank you.

 

[adjusterjack]

You're making a mountain out of a molehill and you don't even have a molehill to start with. The point being is that, depending on the nature of your business (which you have not revealed) you likely don't need an LLC or Delaware.

A tax attorney who participates on other sites has said the following about LLCs:

"The LLC form of business, like the corporation, protects the owners of the business from personal liability for the debts of the business. For example, if the LLC enters into a contract with a third party and breaches it, the LLC is liable for that, but the LLC members are not unless they personally guaranteed the contract, which is something that lenders and astute business people often insist upon. The LLC member is always responsible for his own debts and wrongs, including liability for the negligent acts he performs for the business (and for which the LLC might also be liable). There is also the possibility of "piercing the corporate veil" (google it) which is an even bigger risk for single member LLCs."

And this about filing in Delaware:

"There are two general observations that I have about this. First, wherever it is that the company is managed and controlled is a state in which the company is considered to conduct business and thus state laws typically require that the company either be organized in that state or, if it is organized in some other state, that it register as a foreign entity (in this case, a foreign LLC). "Foreign" in this case means an entity formed any place outside the state. Filing as a foreign entity subject the firm to pretty much all the same rules, fees, and taxes that an entity organized in the state must pay. Thus, in CA, if the LLC is managed and run in that state, it will have to file as a foreign LLC if it is not organized in CA and will still be subject to the franchise tax, minimum of $800/year. What you get organizing someplace else is the privilege of paying additional fees and taxes. That's not a big deal if you do business in that other state, too, since again you must register as foreign in that state if the entity is not organized there. But in general organizing the LLC in any state where there is truly no activity, management or otherwise, conducted in that state is not worthwhile. You don't save anything by doing that; you instead just add additional complexity and cost.

Second, a lot of new business persons seem to think that they need to register their businesses in Delaware (or NV or a few other states) because large corporations often select those states to organize their entities and think if the big guys do it it must be the best way to go. But the reasons big corporations organize in Delaware in particular are things that would not matter to a small, closely held corporation. First, large corporations often do business in every state and so it doesn't really matter in which state they organize anyway. Second, the big appeal of Delaware over other states is that (1) its laws are generally more favorable to management of big corporations when it comes to disputes between the company and its shareholders and (2) Delaware has a specialized court, the Court of Chancery, that resolves such disputes very quickly. Small businesses in which the management and the owners are the same do not need that. Big corporations that have millions of shareholders that might sue the company and the management are the ones interested in that.

In short, I generally advise most of my small business clients to pick a state in which they will actually manage or conduct business to organize the business. If the business is not based in Delaware and doesn't do business there it will be the rare situation that Delaware would be a good choice. If the business will be conducted in more than one state, then the choice of which one to organize in will depend on the details of the business and the state laws of the states involved. Often there is not a huge difference.

By the way, the business is not locked into a particular state. If you organize the entity in, say California to start and later as you get bigger it makes more sense to organize in some other state, it is pretty easy to change the state in which the entity is organized."

Think about all that before you go through the expense and effort of forming an LLC and/or filing in Delaware.

It isn't likely to do for you what you imagine it will do for you.

The way you protect your assets is to buy the proper insurance.

What kind of business are you starting?

 

[zddoodah]

A lot of people have suggested to set the company up in Deleware

Why? What experience do these "people" who made this suggestion have with such matters?

being from MA will this be an issue?

An issue? If you're asking whether you'd be allowed to form a DE LLC even though you're a MA resident, the answer is yes. However, forming your LLC in any state other than your state of residence would almost certainly be a dumb thing to do, but I'll reserve judgment until such time as you explain why you might want to do so.

I know set up wise it is less expensive to set up an LLC in DE vs MA but are there any tax implications, where I am hearing corporate taxes are lower in DE

Of course there are tax implications. Whether "corporate taxes are lower in DE" or not is something I can't speak to. However, an LLC is not a corporation, and a single person LLC is generally disregarded for federal income tax purposes (and, I suspect, for purposes of most states' income taxes also).

If I set up an LLC in DE and live in MA would that mean all my stationery will need to call out a DE address? Can I still maintain my local MA address?

No and yes.

If I do set up the LLC in DE should I be setting up a Bank account there as well so that I can take in all of my payments there or would it be okay to receive payment in MA?

You can bank wherever you like.

How difficult would it be to set up a bank account in DE being that I am from MA?

Not really sure what this question means, but it doesn't seem to raise any legal issue.

Any idea what I would be looking at for State fees for filing for my LLC certification in both DE & MA and would I be able to do it online or would I require an attorney?

If you have a real reason for organizing your LLC somewhere other than your state of residence, then you would be a fool not to consult with an attorney. Fees can be easily googled.