Information About California LLCs
To assist you with deciding whether or not an LLC is right for you, please review the information below.
Key Features of an LLC
- An LLC is a hybrid business entity that can be treated as a partnership, but it has the limited liability protection under civil law.
- An LLC is formed by filing "articles of organization" with the California Secretary of State prior to conducting business. An out-of-state LLC that conducts business in California should register with the Secretary of State.
- Forming an LLC is simpler and faster than forming and maintaining a civil law corporation.
- Either before or after filing its articles of organization, the LLC members must enter into a verbal or written operating agreement. A formal, written agreement is advisable.
- Its members typically manage an LLC, unless the members agree to have a manager handle the LLC’s business affairs.
- An LLC may have one or more owners, and may have different classes of owners. In addition, an LLC may be owned by any combination of individuals or business entities.
- If the LLC has more than one owner, it will be treated as a partnership (subject to Subchapter K), unless it elected to be treated as a corporation. The items of income, deductions, and credits flow through from the LLC to each member’s California Schedule K-1, Members’ Share of Income, Deductions, Credits, etc., and distributive shares of property, payroll, and sales. Each member is responsible for paying taxes on their distributive share. If the LLC has a single member, it will be treated as a disregarded entity, and it will be treated as a sole proprietorship or a division of its owner, unless it elects to be taxable as a corporation.
- A husband and wife owning an LLC may elect to be treated as a partnership or a disregarded entity.
- If the LLC elected to be taxed as a corporation, it is subject to corporation tax law and filing requirements.
- In general, all the owners (members) are shielded from individual liability for debts and obligations of the LLC.
- LLCs do not issue stock and are not required to hold annual meetings or keep written minutes, which a corporation must do in order to preserve the liability shield for its owners.
- Either before or after filing its articles of organization, the LLC members must enter into a verbal or written operating agreement. A formal, written agreement is advisable. Its members typically manage an LLC, unless the members agree to have a manager handle the LLC’s business affairs.
- Generally, members of an LLC that are taxed as a partnership may agree to share the profits and losses in any manner in compliance with Subchapter K. Members of an LLC classified as a corporation receive profits and losses in the same manner as shareholders of a corporation legally organized as such.
- An LLC’s life is perpetual in nature. However, the members may agree to a date or event of termination.
- LLC do not pay income tax but they are subject to the $800 annual tax and a fee.
LLCs Treated As Partnerships
LLCs as Partnerships or Disregarded Entities
LLCs Treated As