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

  • All LLCs (not classified as a corporation) that are doing business in California, or file an article of organization or certificate of registration with the Secretary of State must file Form 568, Limited Liability Company Return of Income, pay the annual minimum franchise tax of $800, and LLC fee (if applicable). 
  • LLCs that have to file in California to report California source income but are not subject to the minimum franchise tax of $800 and the LLC fee (refer to above rules), must file Form 565, Partnership Return of Income, instead of Form 568, Limited Liability Company Return of Income. 
  • An LLC treated as a partnership provides each member with a California Schedule K-1 that states the member’s distributive share of the LLC’s items of income, deductions, credits, property, payroll and sales.
  • An LLC treated as a partnership files FTB 3832, Limited Liability Company Nonresident Members’ Consent, with Form 568. FTB 3832 is signed by the nonresident individuals and foreign entity members to show their consent to California’s jurisdiction to tax their distributive share of income attributable to California source. The LLC must complete Schedule T and pay the tax for every nonresident member who did not sign a FTB 3832.

LLCs as Partnerships or Disregarded Entities

  • California Form 568 or 565 must be filed by the 15th day of the 3rd month after the close of the LLC’s taxable year.
  • The annual tax is due by the 15th day of the 3rd month of the taxable year, and is paid using Form 3522, Limited Liability Company Tax Voucher.
  • The LLC must pay a fee if the California total income is equal to or greater than $250,000. The LLC must estimate the fee it will owe for the year and make an estimated fee payment. 
  • All LLCs treated as partnerships and disregarded entities must complete Schedule EO, Pass-Through Entity Ownership (568), to report any ownership interest in other partnerships or limited liability companies regardless of whether these entities are required to file a tax return in California, or are subject to California annual tax or LLC fee.
  • An LLC treated as a partnership, doing business or deriving income from within and outside of California will use Schedule R to determine their California source income.

LLCs Treated As
​Disregarded Entities

  • If an individual wholly owns an LLC, it will be treated as a disregarded entity unless it elects to be treated as a corporation and all income and expenses of the LLC will be reported on the member’s tax return as a sole proprietorship, i.e. Schedule C business.
  • If a corporation or other business entity wholly owns an LLC, it will be treated as a disregarded entity and all income and expenses of the LLC will be reported on the member’s tax return as a division of the company.
  • All LLCs treated as disregarded entities are required to file Form 568, Side 1, Side 2, Side 6 (Schedule IW), and pay the annual tax and LLC fee (if applicable). If its only member is a nonresident and has not signed the Single Member LLC Information and Consent on bottom of Form 568 Side 1, consenting to California’s jurisdiction, then the LLC is required to complete Schedule T and pay the tax on behalf of its single owner.
  • A Single Member LLC treated as a disregarded entity may also be required to file Schedule B and Schedule K if either of the following two items below are met:
    • The income or loss amount reported on Schedule B, line 1 or line 3 through line 11, is $3 million or more.
    • The total distributive income/payment items on Schedule K, line 21a, is greater than or equal to $3 million or less than or equal to $-3 million.  

LLCs as Corporations

  • All LLCs classified as corporations that organize, register, or doing business in California, or receive California source income must file Form 100, Corporation Franchise or Income Tax Return, or Form 100S, S Corporation Franchise or Income Tax Return.
  • The Form 100 or Form 100S must be filed by the 15th day of the 3rd month after the close of the LLC’s taxable year. The LLC classified as a corporation is taxed at the corporation rate, and it is not subject to the fee or filing of the Schedule K-1, Schedule T, Schedule EO either. Also, follow C Corporation Filing Guidelines or S Corporation Filing Guidelines.