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CALIFORNIA LLC FORMATION

FORMING AN LLC IN CALIFORNIA

A LLC (Limited Liability Company) is by far the most popular organization structure for small businesses, except for sole proprietorships. It provides the same protection as big “C” corporations enjoy, that is limiting the liability of the company owners to the assets of the company and shielding personal assets from creditors and most law suits. An LLC differs from a “C” corporation in that the company doesn’t pay taxes directly (although the company does pay a minimum annual fee of $800 to the California State Franchise Board.) The government of course will tax the earnings but they will be paid through each individual owner just like a partnership.

The company must issue K-1’s to each owner at the end of each year. One of the biggest advantages of an LLC is that the record keeping requirements are much simpler than corporations. And…you can form a LLC with just one owner!

To form a LLC, you first need to choose a name. The name must not be currently in use and it must contain the words “Limited Liability Company” or “LLC”. You also need to file Articles of Organization with the Secretary of State and draft an Operating Agreement. You must decide if the company will be “member managed” or “manager managed”. In LLC’s, the owners are called “members” and the shares are called ownership “units”. The Operating Agreement specifies how the LLC will be run, sets out rules as to how the profits and losses will be split, how major decisions will be made and how members can be added or deleted if they depart.

One further consideration is what state you use to form your LLC. If you don’t plan to do business in California, you should consider another state such as Nevada who doesn’t impose an annual $800 fee on LLC’s just for the privilege of existing. If you form your LLC in Nevada, however, there will be some annual costs such as the list of officers filing fee and the fee for a registered agent.

We can help you decide if a LLC is the right organizational structure for your business and handle the required filings and document preparation. Call our East Bay California Office at (925) 855-1507