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Having represented hundreds of businesses through all stages, from the initial planning stage to the actual formation stage through the life of a business, our office provides continuing legal advice and representation for the success of your business. Receive specialized business litigation representation in areas such as business disputes, contract resolution, and all facets of business law from our legal firm in Fremont, California.

The following is a recently published article by Mr. Kitta in the Santa Cruz Association of Realtors®

IF YOU WANT TO SAVE TAXES, YOU DON’T WANT TO BE A LIMITED LIABILITY COMPANY

The minimum annual franchise tax due to the State of California is $800.00 whether your business is a corporation, a limited liability company or limited partnership.

Unfortunately the State, in connection with limited liability companies, has adopted a gross receipts fee calculated on a company’s gross revenues without taking into consideration expenses and profitability. These fees can be as high as a staggering $11,790.00 per year.

The best way to avoid this situation and minimize your business taxes would be to create a California Limited Partnership as well as a separate distinct LLC. Your LLC will serve in the capacity as a General Partner in the Limited Partnership with a 1% ownership interest. You will be a limited partner in the Limited Partnership with a 99% interest in this entity. Thus, you are afforded with all the protections from personal liability by and through the creation of your limited partnership and LLC.

By the creation of a limited partnership to hold ownership of the property, this enables a business owner to minimize the LLC fee. On this basis, the LLC fee would be calculated on 1% of the gross revenues of the Limited Partnership. If ownership to the business was held solely in the name of the LLC, you would be taxed in the entire gross proceeds.

The above scenario now results in the business owner having to pay an $800.00 minimum franchise tax for each of the two entities resulting in a total payment of $1,600.00 per year.

In summary, based on the State of California’s decision to significantly increase gross receipts, tax due and owing by a LLC entity, it is important that all business owners are cognizant of his or her annual exposure and take whatever steps are necessary to minimize the annual tax contributions. The dual entity structure described in this article has been utilized on a more and more frequent basis by business attorneys for the benefit of their clients.

This information is being provided as a public service to the members of Bay East Association of Realtors by the Law Offices of John N. Kitta.