I am starting a small business based in California and I will be working off of home until I can make money to rent an office. I have been advised to register as a single member LLC, but as I read on FTB website, I will be paying at the $800 fee annually regardless of making or not making money when registered with the Secretary of State of California. Then I read on the FTB.CA.GOV that If the LLC has a single member, it will be disregarded as separate from its owner, and will be treated as a sole proprietorship or a division of its owner, unless it elects to be taxable as a corporation. SO I don't know if I should just register my business as a DBA and get it over with or a single member LLC? and if I choose to do business as a single member LLC, will I have to register with the secretary of state? what happens if I don't register with SOS?
I guess the main reason you might want to register as an LLC is for liability protection. If the product your business provides harms someone in some way and they sue you for damages and they win, then in a properly set up and managed LLC, your personal (IE not in your business) assets should be safe. If you aren't doing business as an LLC, they could collect from your personal assets. The state grants this recognition to properly registered LLCs. If you don't register, you don't get that recognition and an aggrieved person could come after you and your personal assets.
If you don't have a lot of personal assets that someone might go through the hassle of going to court to seize, then, in my opinion, you won't get much value out of an LLC. An LLC is attractive because it is easy to set up but I think that too many people don't investigate the alternatives well enough. You should also look at a Sub-S corporation and you should consider doing business as an individual and just pay any tax on your individual return.
I will be paying at the $800 fee annually regardless of making or notIts not entirely correct. It is actually much worse: LLC is taxed on gross income (as opposed to net income you usually pay your income taxes on). If your gross income is such that the tax (called "LLC fee") is less than $800 - you're charged the statutory minimum $800.
making money when registered with the Secretary of State of
However, any incorporation has the $800 fee in California, be it a corporation, LLC, LLP or LLLP. This is the price of the limited liability in California. You pay it even if you register your company elsewhere. Being in California makes your foreign entity doing business in the State and as such liable for the fees.
it will be disregarded as separate from its owner, and will be treatedThis is for income taxes only, you will still have to pay the LLC fee and file the form 568. See again the FTB site on the matter.
as a sole proprietorship or a division of its owner
if I choose to do business as a single member LLC, will I have toOf course.
register with the secretary of state?
what happens if I don't register with SOS?Then you remain a sole-proprietor, you won't have a legal entity.
Tax-wise, depending on your income you might want to consider S-Corp, if you're eligible for S election if you incorporate.
You can also consider purchasing liability insurance instead of incorporating or working under LLC, if liability is a concern.
Get a consultation with a CA-licensed CPA specializing in startup taxation for more details.