Tag: LLCs

Disregarded Entity Eligibility for the CTA Large Operating Company Exemption

Summary: As discussed in detail below, the Corporate Transparency Act (CTA) provides an exemption to its reporting requirements for certain large operating companies (the Large Operating Company Exemption or “LOC Exemption”). In order to qualify for the LOC Exemption, a reporting company must, among other requirements, “have filed a Federal income tax or information return in the United States in the previous year demonstrating more than $5,000,000 in gross receipts or sales.” Certain reporting companies are “disregarded entities” (DREs) for Federal tax purposes and, as such, do not themselves directly have a Federal tax filing obligation or ability. However, based upon guidance from FinCEN and the IRS, support exists for the proposition that the Federal tax filing of a DRE’s sole individual owner or sole parent entity constitutes the filing referenced in the LOC Exemption, and that a DRE reporting company is not, per se, disqualified from utilizing the LOC Exemption.

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Certain business entities may elect (including through default attribution under the Internal Revenue Code, (IRC) to be treated as “disregarded” from their individual owner or parent entity for U.S. federal income tax purposes. Such entities include limited liability companies (LLCs) who have a single member (unless such an LLC has elected on Internal Revenue Service (IRS) Form 8832 to be taxed as a “corporation”), or certain wholly owned subsidiaries of “S-corporations” where the parent S-corporation has made an election (referred to as a “Q-Sub election”) on IRS Form 8869 to treat the subsidiary as a qualified subchapter S subsidiary (QSub), whereby such Q-Sub is deemed to be liquidated (for federal tax purposes only) into the parent S-corporation.

These entities, often referred to simply as “disregarded entities” do not, as a distinct, juridical person, file a federal income tax return per se. Instead, DREs have their taxable income and loss reflected, on an aggregated basis, on the federal income tax return of their individual owner or (direct or indirect) parent entity. In fact, when reporting the taxpayer identification number (TIN) of a DRE on an IRS Form W-9 (Request for Taxpayer Identification Number and Certification), the DRE provides the federal employer identification number (FEIN) of a parent entity or a social security number (SSN) of an individual owner, rather than a TIN of the DRE itself. This is true even if the DRE has filed for, and has received from the IRS, its own FEIN.

Further to this point, some DREs do not, and are not required to, file for their own FEIN. As such, not all DREs possess their own FEIN or other entity distinct TIN.

The Financial Crimes Enforcement Network (FinCEN), in its Frequently Asked Question F.13 issued July 24, 2024, acknowledged this fact as follows:

“An entity that is disregarded for U.S. tax purposes—a “disregarded entity”—is not treated as an entity separate from its owner for U.S. tax purposes. Instead of a disregarded entity being taxed separately, the entity’s owner reports the entity’s income and deductions as part of the owner’s federal tax return. …

Consistent with rules of the Internal Revenue Service (IRS) regarding the use of TINs, different types of tax identification numbers may be reported for disregarded entities under different circumstances:

  • If the disregarded entity has its own EIN, it may report that EIN as its TIN. If the disregarded entity does not have an EIN, it is not required to obtain one to meet its BOI reporting requirements so long as it can instead provide another type of TIN….
  • If the disregarded entity is a single-member limited liability company (LLC) or otherwise has only one owner that is an individual with a SSN or ITIN, the disregarded entity may report that individual’s SSN or ITIN as its TIN.
  • If the disregarded entity is owned by a U.S. entity that has an EIN, the disregarded entity may report that other entity’s EIN as its TIN.
  • If the disregarded entity is owned by another disregarded entity or a chain of disregarded entities, the disregarded entity may report the TIN of the first owner up the chain of disregarded entities that has a TIN as its TIN.

As explained above, a disregarded entity that is a reporting company must report one of these tax identification numbers when reporting beneficial ownership information to FinCEN.”i

While the above FAQ is not offered by FinCEN specifically in the context of the LOC Exemption, this FAQ does have important implications for the LOC Exemption. In stating that a DRE is not required to obtain an FEIN merely for purposes of having such a number for purposes of filing a beneficial ownership information report (BOIR) under the CTA, and acknowledging that a DRE may provide a SSN of an individual owner, or an FEIN of a parent entity, in satisfaction of the DRE’s requirement to provide a tax identification number as required in FinCEN’s form for filing BOIRs, FinCEN has recognized that the same TIN required by the IRS to be disclosed on a Form W-9 in respect of a DRE is recognized by FinCEN as an appropriate TIN in respect of the DRE for purposes of such entity’s BOIR filing.

As such, the federal tax return filing associated with such a TIN is, therefore, the tax return associated with the DRE reporting such TIN on its BOIR filing. In other words, the fact that an individual owner or a parent entity has made a prior year’s federal tax return filing, which filing includes the U.S. generated gross receipts or sales of the DRE, should be sufficient to satisfy the DRE’s prior year’s federal tax return filing status with respect to such revenue.

As stated in FAQ F.13 above, “a DRE—is not treated as an entity separate from its owner for U.S. tax purposes…, the entity’s owner reports the entity’s income and deductions as part of the owner’s federal tax return…”

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With this background, we next analyze the associated implications to a DRE that may qualify for the LOC Exemption.

For purposes of clarity, the requirements for an entity to qualify for the LOC Exemption is that the entity satisfy all three parts of the following three-part test:

“[A]n entity must have more than 20 full-time employees in the United States, must have filed a Federal income tax or information return in the United States in the previous year demonstrating more than $5,000,000 in gross receipts or sales, and must have an operating presence at a physical office in the United States.”ii

The CTA itself provides more specificity in this regard. The CTA provides that the term “reporting company” does not include any entity that:

“(I) employs more than 20 employees on a full-time basis in the United States; (II) filed in the previous year Federal income tax returns in the United States demonstrating more than $5,000,000 in gross receipts or sales in the aggregate, including the receipts or sales of (aa) other entities owned by the entity; and (bb) other entities through which the entity operates; and (III) has an operating presence at a physical office within the United States.”iii

Although FinCEN has, to date, issued no formal acknowledgment or interpretation with regard to the applicability of the above “revenue prong” specifically in the DRE context, for the reasons outlined above, a reasoned and supported proposition in the DRE situation may be that the “filed Federal income tax or information return” referenced in the LOC Exemption is the federal tax return filing of the reporting company’s individual owner or parent entity, as applicable.

Further to the revenue prong, it appears that if the DRE itself generates U.S. generated gross receipts or sales in excess of five million dollars as reported on the prior year’s federal tax return filing, that the DRE meets the revenue prong of the LOC Exemption. However, based on the above analysis, it may also be a colorable position that the DRE MAY be able to assert that ALL of the U.S. generated gross revenue appearing on the individual owner’s or parent entity’s federal tax return filing may be attributable to the revenue test prong of the LOC Exemption, because all of such revenue is associated with that tax return. This situation is notionally similar to FinCEN’s interpretation that all members of a consolidated corporate taxed group (including each subsidiary) may share in credit for the aggregated gross receipts or sales of the entire group in meeting each of their respective, individual revenue requirements under the LOC Exemption. Here, both the individual and DRE or the parent entity and disregarded subsidiary would be relying upon the same federal tax return, in the individual or partnership tax context.

* * * * *

For purposes of clarity and completeness, we acknowledge a countervailing position espoused by some commentators in the marketplace. That position holds that a DRE is ab initio ineligible to qualify for the LOC Exemption merely because of such reporting company’s status as a DRE (i.e., that it, itself, as a business entity, does not directly cause the filing of its own, independent federal tax return). For the reasons outlined herein, we find this position less compelling than the proposition that disregarded entities have a filed Federal income tax or information return when filed by their individual owner or parent entity.

* * * * *

With respect to exemptions from the reporting obligations under the CTA, each such exemption is “self-executing.” In other words, if an exemption applies to a reporting company, that reporting company has no filing obligation to FinCEN under the CTA. As such, there is no BOIR filing on record documenting that the DRE is relying on its individual owner’s SSN or its parent entity’s FEIN, and, derivatively, the associated federal tax return filing, in establishing compliance with the revenue prong of the LOC Exemption test. We recommend that each DRE making such a reliance-based exemption determination maintain a record of their CTA diligence, analysis and exercise of business judgment made upon a fully informed basis, that underpins the substantiation of the DRE’s satisfaction of all parts of the LOC Exemption test.iv Such substantiation may be needed in the future if FinCEN or one of the DRE’s financial institutions requests substantiation of the DRE’s asserted position that such DRE is not required to file a BOIR under the CTA.

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Conclusion. The compliance requirements under the CTA went live on January 1, 2024, and you have only the remainder of this year to take any action to prepare for your compliance position. Now is the time to discuss the CTA with your Polsinelli legal team for guidance.

[i] See FinCEN CTA FAQs F.13 (issued July 24, 2024)(https://www.fincen.gov/boi-faqs)

[ii] See FinCEN CTA FAQs L.7 (issued April 18, 2024)(https://www.fincen.gov/boi-faqs)

[iii] U.S.C. § 5336 (a)(11)(B)(xxi).

[iv] Note that there are other factors of the LOC Exemption that must be met in order to rely on that exemption, and such other factors are required to be met directly by the DRE. This discussion is not intended to suggest that the DRE may rely, for example, on employee counts of affiliated entities or impermissible U.S. physical address locations in qualifying for the LOC Exemption.

© Polsinelli PC, Polsinelli LLP in California
For more on the Corporate Transparency Act, visit the NLR Corporate Business Organizations section

Amendments to New York LLC Transparency Act Delay Effective Date, Among Other Changes

New York Governor Kathy Hochul last month signed into law amendments to the recently enacted New York LLC Transparency Act (as amended, the “NYLTA”), extending the NYLTA’s effective date from December 21, 2024, to January 1, 2026 (the “Effective Date”).

The NYLTA will require all limited liability companies (“LLCs”) either formed under New York law or foreign LLCs that seek to be authorized to do business in New York to submit certain beneficial ownership information to the New York Department of State. LLCs will be required to disclose their beneficial owners unless the LLC qualifies for an exemption from the requirements. New York LLCs and foreign LLCs registered to do business in New York should evaluate their structure with counsel that is familiar with the NYLTA (and the federal Corporate Transparency Act (the “CTA”)) to determine whether they will have a filing obligation under the new law.

For New York LLCs formed on or prior to the Effective Date, and foreign LLCs authorized to do business in New York on or prior to the Effective Date, the deadline to file the required beneficial ownership report or the statement specifying the applicable exemptions(s) from the filing requirement is January 1, 2027. For New York LLCs formed after the Effective Date, and foreign LLCs authorized in New York after the Effective Date, the NYLTA will require that beneficial ownership information be submitted within thirty days of filing the articles of organization for an LLC formed under New York law or the initial application for registration filed by a foreign LLC. Thereafter, the NYLTA (as amended) imposes an ongoing requirement to file an annual statement with the New York Department of State confirming or updating (1) the beneficial ownership disclosure information; (2) the street address of the entity’s principal executive office; (3) status as an exempt company, if applicable; and (4) such other information as may be designated by the New York Department of State.

The definitions of important terms such as “exempt company,” “reporting company,” “applicant,” and “beneficial owner” used in the NYLTA refer to the equivalent definitions in the CTA but are limited in application only to LLCs. Correspondingly, the NYLTA shares the same 23 exemptions from the reporting requirements as the CTA. If an LLC falls within one or more of the available exemptions, however, in a departure from the CTA, the NYLTA requires the entity to submit a statement attested to under penalty of perjury indicating the specific exemption(s) for which the LLC qualifies.

Potential penalties for failing to comply with the NYLTA include monetary penalties of $500 for every day that a required filing under the NYLTA is past due, as well as a potential suspension or cancellation of an LLC.

The amendments to the NYLTA also provide that the beneficial ownership information relating to natural persons will be deemed confidential except (1) by written consent of or request by the beneficial owner of the LLC; (2) by court order; (3) to federal, state, or local government agencies performing official duties as required by statute; or (4) for a valid law enforcement purpose. This is in contrast to the original New York statute, which provided for beneficial ownership information to be made publicly available in a searchable database.

© 2024 Blank Rome LLP
For more news on the New York LLC Transparency Act, visit the NLR Corporate & Business Organizations section.

Now is a Good Time to Confirm Your S Corporation Status

On October 11, 2022, the IRS published Revenue Procedure 2022-19 providing taxpayers with liberalized procedures for resolving common S corporation issues. Previously, taxpayers would have needed costly IRS letter rulings for certainty on their S corporation status. The new procedures are simpler and less expensive.

The IRS has separately assured taxpayers that LLCs that are classified as S corporations may also qualify for this liberalized relief.

Inadvertent loss of S corporation status can have significant tax consequences and can make your business a less attractive acquisition target. For example, an S corporation that reverts to a C corporation may be subject to a double layer of tax going back several years. As a result, potential acquirers of any S corporation invariably request representations on the validity of the S corporation status.

The new Revenue Procedure describes common situations that the IRS has historically treated as not affecting the validity of S corporation status or qualified S corporation Qsub status, such as:

  1. One class of stock requirement in the governing provisions (including the concept that commercial contractual agreements are not treated as binding agreements unless a “principal purpose” of the agreement is to circumvent the one class of stock requirement);

  2. Disproportionate distributions inadvertently creating a second class of stock;

  3. Certain inadvertent errors or omissions on Form 2553 or Form 8869;

  4. Missing administrative acceptance letters for S corporation or Qsub elections;

  5. Federal income tax return filings inconsistent with an S election; or

  6. Governing provisions that allow for non-identical treatment of shareholders, such as differing liquidation rights (allowing for retroactive corrections).

For these common situations, there are now simpler and cheaper procedures to preserve S corporation status. For example, for certain small errors such as missing officer signatures, S corporations may follow the same simplified procedures as the late election relief procedures in Revenue Ruling 2013-30. Those procedures do not require a private letter ruling request, but only the original election form with a reasonable cause statement. As another example, if the issue is non-identical governing provisions and no disproportionate distributions were made, the S corporation may simply be retroactively treated as an S Corporation if it meets certain eligibility requirements and keeps a copy of a signed statement in its files.

Shareholders of uncertain S corporations should consider taking advantage of these new relaxed and cheaper procedures for curing S corporation mistakes. Each different type of error has a different cure with specific requirements.

Article By Christie R. Galinski and Samuel L. Parks of Miller Canfield

For more corporate law legal news, click here to visit the National Law Review.

© 2022 Miller, Canfield, Paddock and Stone PLC

Which Business Entity is Right For You: Sole Proprietorship, Partnership, LLC, C-Corporation, or S-Corporation?

Introduction

Are you getting ready to launch your business? Or maybe you’re currently operating one and wondering what legal structure is best to use. There are a number of different legal entities to choose from. And each has its own set of pros and cons.

To determine which business entity is the best fit, you’ll want to see which one most applies to your situation and then carefully go over the pros and cons. It’s also a great idea to speak with your tax professional and an attorney.

Some things that will affect your decisions, and your long-term success, are liability protection, taxation, the complexity of management, annual requirements, and the ability to raise money from investors, if applicable.

What are the options?

New businesses in the US have a choice of five basic structures:

  • C-Corporation
  • LLC (Limited Liability Company)
  • S-Corporation
  • Sole Proprietorship
  • Partnership (aka General Partnership)

You’ll want to learn about each business structure and decide which best suits your needs. We’ll explain each type below and will also go over how they are different from each other.

Corporation (aka C-Corporation)

  • A Corporation is a separate legal entity created by state law. A Corporation is formed by filing a document called the Articles of Incorporation. This document is filed in the state where the entity is doing business and is filed with the Secretary of State or a similar government agency.
  • A Corporation must designate a Registered Agent in order to receive service of process and state correspondence.
  • By default, a Corporation is taxed under subchapter C of the Internal Revenue Code. This is often why Corporations are referred to as C-Corporations.
  • On the other hand, a Corporation can elect to be taxed as an S-Corporation (aka being taxed under subchapter S of the Internal Revenue Code) by filing Form 2553 with the IRS.
  • If the Corporation is taxed in its default status (taxed as a C-Corporation), the Corporation will face double taxation. Essentially, the Corporation is taxed at the corporate level on its profits. And then the Shareholders are taxed again, at the individual level, after they receive distributions (their share of profit).
  • C-Corporations are also responsible for paying state corporate income tax, if applicable, where they are domiciled and/or transacting business.
  • Corporations also have statutory requirements, such as electing a board of directors, designating corporate offers, holding annual meetings, and recording meeting minutes.
  • Corporations are not commonly used by small business owners. Instead, they are used by larger companies or tech startups often looking to raise venture capital from investors.

LLC (Limited Liability Company)

  • An LLC, aka Limited Liability Company, is a separate legal entity created by state law. An LLC is often formed by filing a document called the Articles of Organization. However, depending on the state, this form is also known as the Certificate of Organization or Certificate of Formation. This document is filed in the state where the entity is doing business and is filed with the Secretary of State or a similar government agency.
  • An LLC must also designate, and maintain, a Registered Agent. A Registered Agent must be located in the state where the LLC is formed. For example, if an LLC is formed in Texas, it must designate a Registered Agent in Texas.
  • The LLC is unique when it comes to tax treatment by the IRS. This means, there is no “LLC tax classification”. Instead, the LLC is taxed based on the number of owners. Alternatively, the LLC can make an election with the IRS, requesting to be taxed as a Corporation (C-Corporation or S-Corporation).
  • An LLC with one owner is known as a Disregarded Entity. This simply means the IRS “looks through” the LLC; looks at who the owner is, and taxes the individual or company accordingly. For example, if an American taxpayer is the single owner of an LLC, the LLC will be taxed as a Sole Proprietorship. If the LLC is owned by two or more people, the LLC will be taxed as a Partnership. And if the LLC is owned by another company, it will be taxed as a branch/division of the parent company.
  • And alternatively, the LLC can elect to be taxed as either a C-Corporation (by filing Form 8832) or an S-Corporation (by filing Form 2553).
  • LLCs taxed as Sole Proprietorship, Partnerships, and S-Corporations are all known as pass-through entities. This means there is no corporate-level taxation (company-level taxation). Instead, the taxes flow through to the owners and are reported and paid on their personal tax returns.
  • In the more uncommon setup – an LLC taxed as a C-Corporation – the LLC would face double taxation, just like a regular Corporation would.
  • And while an LLC may be able to be used for estate planning purposes, it’s often wiser to have your LLC owned by your trust(s). Of course, it’s best to speak with an estate planning attorney on such a matter.
  • In summary, for many small business owners, LLCs are the “best of all worlds”. They receive liability protection, just like a Corporation, but they are, by default, pass-through tax entities. And if the LLC would like to be subject to corporate tax treatment by the IRS, the LLC can make the necessary election. Said another way, while providing liability protection to its owners, the LLC can pretty much choose how it would like to be taxed.
  • LLCs also have more flexible management options and don’t have as many formal, and annual requirements, such as Corporations.
  • LLCs are the most popular type of business entity in the United States, mostly because of their flexibility and the personal liability protection they offer to owners.

S-Corporation (aka S Corp)

  • An S-Corporation is unique because it is not a legal entity, like an LLC or a Corporation. Instead, it’s a tax election made with the IRS.
  • It’s easier to think of it this way: The S-Corporation tax election “sits on top of” a state-level entity, such as an LLC or Corporation.
  • This is one of the most common myths with S-Corporations. People think you can just “form” an S-Corp. You simply cannot. There is no state or federal filing to “form” an S-Corp. Instead, one must first form an LLC or Corporation, and then timely file Form 2553 with the IRS to request to be taxed under Subchapter S of the Internal Revenue Code.
  • Once the IRS grants the elective status, it’s common to refer to the entity as an S-Corporation and its owners as Shareholders.
  • For most, the primary reason to explore S-Corp tax treatment is to save money on self-employment taxes.
  • Owners of an S-Corporation must take a “reasonable salary” (which is subject to self-employment taxes), but any remaining profit can be taken as a distribution (which isn’t subject to self-employment taxes). And that’s the main appeal of S-Corporations right there.
  • It’s important to keep in mind that with an S-Corporation, you must regularly run payroll, withhold taxes, file quarterly payroll returns (federal and state), hire a bookkeeper (or manage your own books), keep an accurate balance sheet (since it’s required to be filed with the IRS), file a corporate tax return (Form 1120S, K-1s for shareholders/owners, and any additional Schedules), and hire an accountant if you don’t have one already.
  • All of the above costs money. And those costs – which average $2,000 – $4,000 for small business owners – need to be compared to the potential self-employment tax savings; in order to make sure the S-Corp tax treatment makes sense.
  • S-Corporations can be owned by US citizens, US trusts (depending on how they’re taxed), US estates, US resident aliens, and US tax-exempt organizations.
  • S-Corporations cannot be owned by Non-US residents (aka non-resident aliens), foreign companies, C-Corporations, Partnerships, financial institutions, or insurance companies.
  • If you’re considering having your entity taxed as an S-Corporation, it’s important to speak with an accountant to make sure the extra cost – and additional filing requirements – are worth the self-employment tax savings. Having your business entity taxed as an S-Corporation can be a good idea for some, but isn’t necessarily a good idea for everyone.

Sole proprietorship

  • A Sole Proprietorship is an informal “business structure” with one owner.
  • There is no paperwork to file with the Secretary of State, or a similar government agency, to create a Sole Proprietorship.
  • You simply are a Sole Proprietorship once you engage in business activities, or engage in activities with the goal of making money.
  • A Sole Proprietor can do business under their own name or they can file a DBA (Doing Business As) Name. For example, John Doe can do business under his name, John Doe, or he can file a DBA called “John’s Painting Company”.
  • The advantage of a Sole Proprietorship is that they are easy to set up.
  • And taxes are pretty straightforward with a Sole Proprietorship. The owner will simply file a Schedule C and report their business income (or loss) on their personal tax return.
  • The largest disadvantage of Sole Proprietorship is that there is no liability protection for the owner. In the eyes of the law, the owner and their business are one and the same. If the business is involved in a lawsuit, the owner’s personal assets (home, cars, bank account, etc.) could be used to settle business debts and liabilities.
  • Another disadvantage of a Sole Proprietorship is that if you eventually form an LLC or Corporation, there is no official “conversion” filing. So you basically have to start all over again – filing paperwork with the state, getting an EIN (Federal Tax ID Number), opening a business bank account, etc. So if you’re on the fence, between an LLC or Sole Proprietorship, for example, it’s often easier to just form an LLC.
  • However, if you believe your business has a low liability risk and you don’t have money to form an LLC or Corporation, starting your business as a Sole Proprietorship may be the best method to getting your business off the ground.

General Partnership (aka Partnership)

  • A General Partnership (Partnership) is pretty much a Sole Proprietorship with 2 or more people. Said another way, it’s an informal “business structure” with multiple owners.
  • In most states, there is no paperwork to file with the Secretary of State, or a similar government agency, to create a General Partnership (there are few states though that require General Partnerships to register).
  • A Partnership can do business under the names of the owners or it can file a DBA (Doing Business As) Name.
  • The advantage of a General Partnership is that it is easy to set up.
  • Partnership taxes are not as straightforward as with a Sole Proprietorship though. For instance, the Partnership must file a Form 1065 and issue K-1s to the partners. Then the partners report their K-1 income on their personal tax returns.
  • The largest disadvantage of a Partnership is that there is no liability protection for the owners. Again, in the eyes of the law, the owners and their businesses are one and the same. If the business is involved in a lawsuit, the owner’s personal assets (home, cars, bank accounts, etc.) could be used to settle business debts and liabilities.
  • While a Partnership may be a good way to save money and get a business off the ground, most people quickly shift to a legal business entity, like an LLC or Corporation.

Choosing the best entity structure for your business

  • Generally speaking, the LLC is the most adaptable corporate structure, and for that reason the most popular choice in the U.S. The LLC can pretty much choose how it would like to be taxed by the IRS, all while providing its owners’ personal liability protection.
  • Having said that, some owners may elect for their LLC to be taxed as an S-Corporation to save money on self-employment taxes.
  • Or larger businesses (or those raising money) may prefer to form a Corporation, especially if they have large healthcare expenses.
  • And while Sole Proprietorships and General Partnerships may be good to start off with, owners may quickly outgrow them or not feel comfortable with the lack of personal liability protection.

Conclusion

Choosing the best legal entity for your business is a game of weighing the pros and cons. Things to consider are liability protection for the owners, tax treatment by the IRS, and the reporting requirements, among other things. Typically, larger companies or those raising money from investors opt for the Corporation, while most small business owners choose to form an LLC.

Article By Matt Horwitz of LLC University

For more corporate and business legal news, click here to visit the National Law Review.

© Copyright 2010 LLC University

For A Limited Time Only – California Is Giving Away Corporations, LLCs And More!

As a result of the recent enactment of California’s 2022-2023 Budget Bill, the California Secretary of State’s office has announced a temporary waiver of many business entity filing fees.   This waiver will last until June 30, 2023, the end of the state’s current fiscal year.

Here is the Secretary of State’s list of filings for which no filing fee is currently being imposed:

  • Articles of Organization – CA LLC

  • Registration – Out-of-State LLC

  • Articles of Incorporation – CA Corporation – Benefit

  • Articles of Incorporation – CA Corporation – Close

  • Articles of Incorporation – CA Corporation – General Stock

  • Articles of Incorporation – CA Corporation – Insurer

  • Articles of Incorporation – CA Corporation – Professional

  • Articles of Incorporation – CA Corporation – Social Purpose

  • Registration – Out-of-State Corporation – Accountancy or Law (Professional)

  • Registration – Out-of-State Corporation – Insurer

  • Registration – Out-of-State Corporation – Stock

  • Articles of Incorporation – CA Nonprofit Corporation – Mutual Benefit

  • Articles of Incorporation – CA Nonprofit Corporation – Mutual Benefit – Common Interest Development

  • Articles of Incorporation – CA Nonprofit Corporation – Mutual Benefit – Credit Union

  • Articles of Incorporation – CA Nonprofit Corporation – Public Benefit

  • Articles of Incorporation – CA Nonprofit Corporation – Public Benefit – Common Interest Development

  • Articles of Incorporation – CA Nonprofit Corporation – Religious

  • Registration – Out-of-State Corporation – Nonprofit

  • Articles of Incorporation – CA Corporation – Agricultural Cooperative Association

  • Articles of Incorporation – CA Corporation – Cannabis Cooperative Association

  • Articles of Incorporation – CA Corporation – General Cooperative

  • Certificate of Limited Partnership – CA LP

  • Registration – Out-of-State LP

Note that the Secretary of State will continue to impose other fees not listed above.

It is unlikely that this temporary suspension of fees will have any significant impact on the number of business entities being formed under California law.  Historically, these fees have been relatively modest.  For example, the fee for filing articles of incorporation is $100.  Cal. Gov’t Code § 12186(c).  The real costs are the ongoing costs associated with the crushing tax and regulatory burdens placed on businesses by the state.  According to the Tax Foundation, California ranks 48th in business tax climate (just ahead of New York and New Jersey).

Article By Keith Paul Bishop of Allen Matkins Leck Gamble Mallory & Natsis LLP

For more corporate law legal news, click here to visit the National Law Review.

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP