|WHAT IS A LIMITED LIABILITY COMPANY (LLC)|
A limited liability company is a legal entity, separate and distinct from its owners, created for the purpose of conducting business. In California, limited liability companies are governed by the Beverly-Killea Limited Liability Company Act, which starts at California Corporations Code section 17000.
Professional Services Information
Pursuant to California Corporations Code section 17375, a domestic or foreign limited liability company may not render professional services, as defined in Corporations Code sections 13401(a) and 13401.3. Professional services are defined as:
If your business is required to be licensed, registered or certified, it is recommended that you contact the appropriate licensing authority before filing with the Secretary of States office in order to determine whether your services are considered professional.
|WHAT NAME CAN I CHOOSE FOR MY LLC?|
You may choose any name for your LLC so long as it complies with the following rules:
For more on this topic, see California Corporations Code section 17052.
|HOW CAN I MAKE SURE THAT THE NAME I WANT IS OK TO USE?|
The first thing you should do is try to reserve the name. While there is a cost involved, reserving the name is the ONLY way to make sure it is available and to protect it for 60 days and insure that it complies with all the foregoing rules.
|WHAT IS THE "ARTICLES OF ORGANIZATION"?|
|The "Articles of Organization" is that document that, when filed with the California Secretary of State, causes the limited liability company to come into existence. Per California Corporations Code section 17050, the California Secretary of State has a prescribed form for the Articles of Organization. Someone must prepare, execute and file this form in order to create an LLC. You can quickly and correctly prepare this form by clicking here. If you order the Complete LLC Package from us, we prepare this form for you.|
|WHO IS THE ORGANIZER?|
The organizer is the person who signs the articles of organization. The organizer does not need to be a member or manager of the limited liability company - it may be any person or entity.
If you are reserving an LLC name using this website, you must enter the name of the organizer and you must make sure to name the same person as organizer when preparing your articles of organization.
|WHAT IS AN OPERATING AGREEMENT? IS IT NECESSARY?|
|An operating agreement is any agreement, written or oral, between all
of the members as to the affairs of a limited liability company and the
conduct of its business in any manner not inconsistent with law. See
California Corporations Code section 17001 for a more detailed definition.
Yes, an operating agreement is necessary. Per California Corporations Code section 17050, either before or after filing the Articles of Organization, the members must enter into an operating agreement. While an operating agreement may be oral according to the law, there are too many details and legal issues involved to simple rely on a verbal agreement. Having a written operating agreement is the best way to protect your interests and avoid disputes with your fellow members.
|WHAT IS AN AGENT FOR SERVICE OF PROCESS?|
| An agent for service of process is a person designated by the company
to accept the delivery of legal papers for a lawsuit. Anyone residing in
California can serve as the agent for service of process for a California
limited liability company. A person serving as the agent needs to provide
his/her complete address in California.
Pursuant to California Corporations Code section 17057, each California limited liability company MUST have an agent for service of process in California.
You can choose to have serve as your agent for service of process. Click here to learn more about using us as your agent.
|WHY DO I NEED AN ADDRESS IN CALIFORNIA?|
|Pursuant to California Corporations Code section 17057, each California limited liability company must continuously maintain an office in California at which certain records are maintained.|
|WHAT IS A MEMBER?|
|While there is a legal definition of "member" in California Corporations Code section 17001(x), it is best to think of a member as an owner of the limited liability company (much like shareholders are to a corporation). A member has a bundle of rights in the company known as a "membership interest." These rights include the rights to vote and share in the profits and losses of the business - as well as other rights associated with ownership of a business.|
|WHAT IS A SPOUSAL CONSENT?|
A spousal consent is a document to be signed by the nonmember-spouse
of a limited liability company member. By signing the consent, the spouse
is agreeing to the terms of the operating agreement and to the fact that
the member spouse is the person involved in the business.
A spousal consent is important for the other members to know who their business partners will be. Why? California is a community property state. Non-member spouses may have community property interests in a member-spouse's membership interest. This could have numerous consequences. For example, if a member dies, the spouse's community property right would supercede the transfer provisions of the operating agreement. The other members would then be forced to deal with the spouse of the deceased member.
|WHAT IS A CONTRIBUTION OF INITIAL CAPITAL?|
|A contribution of initial capital is what each member will "put-in"
at the start to get the company started. In exchange for their initial capital
contribution, each member will receive a proportionate ownership interest
in the limited liability company.
The contribution of a person may be in money, property, or services, or other obligation to contribute money or property or to render services. See California Corporations Code section 17200. See also California Corporations Code section 17001(g) for a more detailed definition of what constitutes a "contribution."
There are different tax consequences for different types of contributions. You should seek the assistance of a tax professional in deciding what to contribute as your initial capital.
|WHAT IS AN "ECONOMIC INTEREST" IN THE COMPANY|
|An "Economic Interest" means the right to share in the income, gains, losses, deductions, credit or similar items of, and to receive distributions from, the Company, but does not include any other rights of a Member, including the right to vote or to participate in management, except for any rights enumerated in California Corporations Code section 17106.|
|WHAT IS THE DIFFERENCE BETWEEN MANAGEMENT BY MEMBERS OR BY MANAGERS?|
|The Articles of Organization must indicate whether the limited liability
company will be managed by its members, or by managers. If management is
to be by members, this means that ALL the members will participate in managing
the business and affairs of the company. Otherwise, managers will be elected
to manage the business and affairs of the company. Managers may also be
members but need not be.
Whether management is by members or managers, decisions by the management may be made by either holding meetings or by written consent in lieu of meetings. The operating agreement you may create using this website has slightly different conditions for each situation, as explained below:
In the case of managers taking action WITHOUT a meeting, you must select whether you want a majority of managers or ALL the managers to consent to an action in writing before it is considered valid. Again, "majority" in this case is by number of managers.
|WHAT IS A TAX MATTERS PARTNER?|
|A tax matters partner (or member in the case of a limited liability company ) is that members designated by the limited liability company to be responsible for dealing with the taxing authorities and tax related issues. The Internal Revenue Code requires that a person be designated for this purpose and gives the tax matters member authority to make certain decisions on behalf of the company with respect to tax matters issues.|
|WHAT IS A MEMBERSHIP INTEREST AND HOW IS IT VALUED?|
|A membership interest is that bundle of rights owned by each member. These
rights include the right to vote and to share in the profits and losses
of the company.
A membership interests depends on the value of the company. A company can be valued in a variety of ways. The operating agreement you may create using this website offers two of the most common choices for valuing a business, briefly described as follows:
1) Appraisal Method: Using this method, an appraiser is hired to value the company. If the parties cannot agree to the same appraiser, then each party hires an appraiser. Depending on the results of the appraisals, a third appraiser may need to be hired. This method is more costly then the alternative because of the fees to be paid to an appraiser.
2) Capitalization of Earnings Method: Using this method, the value of the company is based on a twenty-four month "rolling average" of the company's net profits, less debts plus cash. The average figure to be used is multiplied by a "factor" or a "multiplier" as these terms may be known in a particular business industry. The parties must agree in advance to the multiplier, which can be anywhere between 1-20, depending on the type of business and the industry.
In lieu of these methods, this website allows you to formulate and enter your own valuation method for a membership interest.
|IN THE EVENT OF A BUY-OUT, HOW WILL PAYMENT BE MADE?|
|If a member's membership interest in a limited liability company will b purchased, the operating agreement you may prepare using this website allows for payment of the purchase price in one of two ways: 1) a cash payment, or 2) a payment of 20% down, with the remainder to be a loan. While the loan is assumed to be paid on a monthly basis, you must select an interest rate and the number of months required to pay back the loan. Remember, the repayment term is in months, so if you decide upon a repayment of 5 years, you must enter "60" where prompted (because 60 months = 5 years).|
|THINGS TO CONSIDER|
Calculation of a Member's Percentage Interest
Allocations and Distributions
Transfer and Assignment of Interests
A limited liability company is not subject to the taxes and fees imposed by Revenue and Taxation Code sections 17941 and 17942 if the limited liability company did no business in California during the taxable year and the taxable year was 15 days or less. (Rev. and Tax. Code § 17946.)
|GET AN EMPLOYER ID NUMBER (a.k.a. Tax ID #)|
Obtaining an Employer Identification Number is easy, fast, and best of all - its FREE! You do not need to pay anyone to get an EIN for your LLC. Simply go directly to the IRS's website at:
|FILE A STATEMENT OF INFORMATION|
|For limited liability companies, California requires that a Statements
of Information be filed with the Secretary of State within 90 days of organization
and every two years thereafter. Also, if the name or address of the company's
agent for service of process has changed, then the company must file a Statement
While the California Secretary of State allows corporations to e-file their Statement of Information, at this time limited liability companies must use the old-fashioned method of filling-out a form and mailing it in with any applicable filing fees.
If you have hired as your agent for service of process, then we have emailed you the form you need. Otherwise, you may click here to get the form and instructions:
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The material above is NOT a complete explanation of the law regarding the form's subject matter -- it only provides specific legal information regarding the associated form. It is not intended to provide information outside the scope of the associated form. It is intended to explain only certain legal concepts in simple terms in order to help the reader understand what the form is for and how it's generally used.
Also, the above information is not legal advice. It is GENERAL legal information that merely states the law. If you need legal advice about your own particular situation, you must hire an attorney that can listen and apply the law to your specific facts. cannot and does not practice law and cannot help you with your individual problem.
Also, the foregoing information and the form related hereto pertain only to California law, unless indicated otherwise at the top of the corresponding . This website does not have information regarding federal law or the laws of other states.