California LLC question

[Evan Howe]

I live in CA and am about to purchase my first OOS investment property, targeting Cleveland OH. I am looking at an LLC vs SP, with the LLC registered in OH. I know CA has an $800/year fee for any LLC "doing business" in CA, but believe that if I do not have CA "payroll" of greater than $69k(approx), then this would not apply and therefore no fee. Am I interpreting this correctly?

CA details in question: 
https://www.ftb.ca.gov/file/business/doing-business-in-calif...

[Luis Alvarez]

@Evan Howe To echo what others have said on here, the $800 annual LLC Franchise Tax Board fee is usually unavoidable. I am not providing specific tax advice, I would confirm with a CPA familiar with CA taxes. However, the link you've provided appears to address tax tiers related to payroll taxes you would pay the CA FTB if you reach certain points, the LLC fee is a separate issue, but because the FTB oversees the LLC fee, sometimes this gets confused with that.

This is not meant to be specific legal advice to you and your situation, just my opinion from years of estate planning and asset protection background:  

1) If there is an asset owned in OH, then to shelter that asset from inside and outside liability, a OH-registered LLC should own title to that property. Having the asset (located in OH) owned by a LLC (in OH) avails that asset to the laws and protections of OH state law. OH courts may or may not recognize outside LLCs in the same fashion, but this is a legal research question that should be conducted by someone who has experience researching on WestLaw or LexisNexis...Google research is not something I would rely on for my assets.

2) If you live in CA, you would want to register the OH LLC as a "foreign entity" in CA, and to echo what the others have mentioned, yes, you'll then have to pay the $800 annual FTB fee. But contrary to what many on BP would tell you, I personally don't think this is a crushing fee when you think about it providing you with a clean and narrow registration of the LLC in CA and thus, by extension, availing the manager of the LLC (presumably you) to the laws and protections of CA state law.

3) A quick distinction between the LLC v. Umbrella Policy debate: an LLC limits and protects assets owned by that LLC from liability exposure, while an Umbrella Policy simply pays for liability once it has already been incurred (and you, under your personal name, have been found liable of damages. Once again, an Umbrella Policy does not personally protect you from liability, it only pays for damages after the fact.  Additionally, a UP only kicks in after your underlying insurance policies have already been exhausted, and those underlying policies (e.g. "landlord insurance") will look at every possibility to not pay out (instances of gross or specific negligence, etc.)  And you should always have someone review the language in the policies and the UP policy (yes, the full 80-100 page documents) to make sure the exclusions are crystal-clear.  It's like I learned in law school, the legal industry is just reading "Terms and Conditions" for the rest of your life :)