In an earlier post, In Delaware, No Par Value Can Cost a Bundle, I discussed the two methods by which Delaware’s franchise tax for a corporation may be calculated. This post discusses the history of those two methods.
To some extent, this post is educated guesswork. It is based on a Quora question that I answered. Please see What is the rationale/reason (not math) behind the two methods of calculation for Delaware’s domestic franchise tax fee?
This post about California’s $800 franchise tax is based on my recent answer to a Quora question.
A.: One can cancel a California limited liability company before the 15th day of the fourth month. However, such cancellation will not eliminate the obligation to pay the $800 annual franchise tax. (more…)
This post discusses whether one should form separate legal entities (corporations or limited liability companies) for different lines of business.
I am writing this post because I have seen this type of question online many times. The most recent occurrence was on Avvo. See Should I set up a subdivision or have a LLC or corporation own another LLC? (more…)
This post addresses a question that arises frequently from founders of California limited liability companies that have been suspended: Can I walk away from my suspended LLC?
A suspended LLC is the result of a founder who has neglected to file Statements of Information with the Secretary of State, or file returns with or pay amounts due to the Franchise Tax Board, or both of the foregoing. Please see Why was My Corporation / LLC Suspended or Forfeited? (more…)
This post addresses how one may move an existing corporation to another state. It is based on a question that I answered on Quora (What state is best to incorporate an S-corp if you plan on moving away?).
I find that for most entrepreneurs, it makes sense to incorporate in the state where the entrepreneur resides. As I wrote in In which State should My Startup Incorporate?
Incorporate in the state in which you are doing business, unless there is a good reason to do otherwise [in which case the other state chosen probably will be Delaware]. (more…)
An Employer Identification Number, issued by the Internal Revenue Service, is the most important identifying number for US businesses, especially for tax purposes. This post addresses how you can find a lost EIN.
Find the Lost EIN Yourself
The IRS Lost or Misplaced Your EIN? page starts by recommending searches for existing records that should include the lost EIN:
- The IRS confirmation notice that was provided when the EIN was issued.
- Bank accounts that were opened, or governmental licenses that were issued, based on the EIN.
- Tax return that were filed.
I recently have received several inquiries about whether a foreign company or its owners need an ITIN (Individual Taxpayer Identification Number) when they bring their business to the US. The answer is, “No.” The rest of this post explains why that is the case.
When a company wants to do business in the US, it needs an EIN (Employer Identification Number).
For a foreign or foreign-owned company, obtaining an EIN can be intimidating. This is especially true if the principal officer lacks a US social security number. (The EIN cannot be obtained quickly and easily online.)
The California $800 per year minimum franchise tax applies to both corporations and limited liability companies. Many people do not realize, however, that the tax can be avoided – at least, for a short time.
As explained in Franchise Tax Board Publications 1060 (for corporations) and 3556 (for LLCs), there is a “15-day rule” or “15-day exception” stating that the minimum franchise tax need not be paid for an initial tax year if:
- The corporation or LLC was formed (Articles filed with the Secretary of State) during the last 15 days of the entity’s tax year, and
- The entity conducted no business during that period.
So, if an entity has a tax year ending December 31 (as most do), then it can be formed on December 17 or later, and it will not have to pay the California $800 minimum franchise tax until the following year.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Almost two years ago, I wrote about how Delaware corporations with no-par-value stock can find themselves obligated to pay extraordinarily high franchise taxes (In Delaware, No-Par-Value Can Cost a Bundle). Yesterday, a reader of this blog pointed out that IncNow, an online incorporation service, virtually lures naive customers into this tax trap.
Here is what the reader reported to me:
- IncNow’s default assumption is that no-par stock will be issued.
- IncNow does not invite the user to specify a par value (in contrast to LegalZoom, for example, which does).
- IncNow’s representative said that the reader “could assign a par value to shares, under special requests at the bottom of the checkout form” [emphasis added].