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Basics of Limited Liability Company Formation in California
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After the United States’ Internal Revenue Service (IRS) classifies LLC as a pass-through-entity in 1988, all states passed legislations allowing the creation of LLC within their respective territories. It includes the state of California, which enacted The Beverly-Killea Limited Liability Company Act in 1996 that paves the way for the creation of the limited liability company within the California’s jurisdiction.
Initially, the California laws taxed LLC as a partnership with pass-through-entity tax treatment unless LLC owners declared to be taxed at the entity level.
In addition, California also amended the Beverly-Killea Act allowing the existence of single-owner LLC. In other words, anybody who owns such type of LLC will now be enjoying the personal limited liability in contrast to the traditional sole-proprietorship business structure.
If you are an entrepreneur who wants to conduct business in California, an LLC is just right for you. In order to enjoy its benefits and advantages, you need to create an LLC which begins by filing the articles of organization and by executing an LLC operating agreement by the owners of the company.
Articles of Organization for California LLC
The Articles of Organization are filed with the California Secretary of State’s Office through its LLC and Corporate Division. Such articles need to disclose the following information:
1. The proposed name of the LLC;
2. The purpose of its existence (equivalent to a corporation’s mission, vision, goals, and objectives);
3. The agent registered to act on legal matters on behalf of the LLC;
4. Detailed description of the type of business which constitutes the main business agenda of the LLC; and
5. A declaration which states the management responsibilities of the LLC, whether it would be vested on one or more manager duly elected by all owners, a single owner, or all LLC owners.
Such Articles must be filed with the Secretary of State’s office through the LLC and Corporate Division located in Sacramento, California. Filing fee is around $70, and the effective date of the existence of LLC starts from the date of filing of the articles.
LLC Operating Agreement
While other states do not require a written operating agreement, the case in California is quite different. All LLCs in California are required to have an LLC Operating Agreement under the existing state laws. It can be accomplished either before or after filing of articles of organization. Such agreement must have the following details:
1. The rights and responsibilities of LLC owners;
2. Capital shares such as contribution of cash, property, or services of each individual LLC owner;
3. Disclosure of financial matters to the LLC owners such as accounting records and financial and tax reports;
4. Profit distribution plan to all owners;
5. Allocation of business losses;
6. Meetings of owners and elected LLC managers;
7. Voting requirements;
8. Terms and conditions with regards to:
a. Assignment of ownership interests, and
b. Termination, withdrawal, expulsion, and admission of owners;
9. Dissolution of the LLC; and
10. Procedures on amending the LLC operating agreement.
Statement of Information
An LLC is required to file with the office of California’s Secretary of State a Statement of Information within 90 days after filing the articles of organization. It is stipulated under the California Corporation Code No. 17060. It must include the following items:
1. The names and addresses of the elected managers, in case of manager-managed LLC, or the LLC owners themselves, in case of owner-managed.
2. Statement declaring the nature of the business’ activity.
3. The name and address of the registered agents acting on legal matters in behalf of LLC.
4. The address of the LLC’s main business office.
These are the basics with regards to formation of LLC within the territory of California. Remember all the required documents that must be filed in order for the state government to recognize the existence of your LLC.
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