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WiseOwl58, Attorney
Category: Business Law
Satisfied Customers: 3729
Experience:  Senior Associate at White & Case LLP
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Hi, were thinking about creating an LLC as a holding company

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Hi, we're thinking about creating an LLC as a holding company for investment purposes. We have several corporations set up throughout the nation, most of which are located in CA. The LLC will be wholly-owned subsidiary of a parent company in a foreign country. So the parent company will put money into the LLC and the LLC will fund various corporations throughout the nation. We want to know which state is best to set up our LLC - CA or Delaware? Please explain why one state is better than the other in this context. Thank you.
Submitted: 5 years ago.
Category: Business Law
Expert:  WiseOwl58 replied 5 years ago.
Delaware has a body of corporate law that is more favorable to the management of the company than California. Delaware is also probably the most flexible set of corporate laws in the country. If you run into legal problems, the Delaware business courts, called the chancery courts, are specialized business courts that are probably the most sophisticated business courts in the country.

Additionally, if you are ever looking for outside investors, including venture capital or angel funding, sophisticated investors prefer an investment in a Delaware entity, even if the investor is located in California. For example, the "Sand Hill Road VCs" all prefer to invest in Delaware entities rather than California corporations or California LLCs.

Good luck to you. I wish you all the best.
Customer: replied 5 years ago.
So even though most of our businesses are operated in CA, it would be beneficial to create an LLC in Delaware? My thoughts were same as yours but I'm being cautious because I'm getting mixed information. Some say if the LLC were ever to send funds to our corporations in CA, we're going to have to register the LLC as a foreign entity anyways so why go through the trouble of setting it up in Delaware? I'm not sure if this is true.
Expert:  WiseOwl58 replied 5 years ago.
Well, it is true that if you are operating in California, you are required to register as a "foreign" LLC, meaning that you are organized in another state. But here, as you describe it, you would not be "operating" the business in California, so it may not be necessary to register as an operating company in California. The Delaware laws are so much more advantageous, and would give your business so much more credibility, that even if you did have to register in California, it would be worth it. And California has recently instituted several "breaks" in the state franchise tax that makes it less expensive if you do end up registering in California.
Customer: replied 5 years ago.
Thank you for your response. So for now, only "operating" part of the LLC is to send money to corporations in CA so it probably will not be necessary to register as a foreign company, right? And the company is looking to grow in the future so for credibility and liability purposes, it should be better to set up LLC in Delaware. These are my final questions. Thank you for your help in advance.
Expert:  WiseOwl58 replied 5 years ago.
Yes, that is correct. You will be so much more credible and attractive to investors, even California based VC investors, if you are organized as a Delaware entity. The California registration would be minimal, if even required at all.

My recommendation hands down is Delaware. I have organized many Delaware entities, and I am based in California.

Good luck to you. I wish you much success.
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