California LLC Operation, Management, and Ownership
Information About Running A California LLC
Ownership and management requirements for your business will differ depending on the structure you select. California LLCs have a flexible ownership structure. Like California C – corporation management, your LLC can have as many owners as you like. Owners don’t have to be U.S. citizens or permanent residents, and there are no specifications regarding where they can live. A California LLC can even be owned by businesses, such as corporations or other LLCs, including international businesses. This gives a California LLC more flexibility than a California S – corporation.
When it comes to overseeing the daily functions of your California LLC, you can hire managers, mirroring the operations of a California corporation. You can also choose a flexible management structure by controlling the daily functioning of your business by yourself or with other members; this resembles the managerial structure of a partnership. This flexibility is not available to corporations.
Members usually manage their California LLCs, taking advantage of the flexibility afforded to limited liability companies. However, if your California LLC does business in areas in which you and other members are not experts, or in which you lack essential knowledge and skills, you may prefer to run your California LLC like corporation, with managers monitoring daily tasks.
Establishing a California LLC
Once you have thoroughly researched your options, spoken with your California incorporation lawyer, and chosen to create an LLC, it is time to establish your new company.
Creating a successful California LLC hinges on several important steps. With the help of a California incorporation law firm, you must prepare and file a document called the LLC Articles of Organization with a state filing office. Your California incorporation lawyer will help you prepare this document to satisfy state guidelines, and will confirm that it was received by the filing office.
Next, you will draft and sign an LLC operating agreement, detailed below. Your California incorporation lawyer can help you with this process, ensuring that your LLC operating agreement does not omit any important information.
Finally, you must obtain an Employer Identification Number (EIN). Your California LLC EIN acts as your federal tax ID number. You do not need to obtain a state tax ID number for a California LLC. You must apply for an EIN after your Articles of Organization are approved by the state. Obtaining an EIN is essential, even for California LLCs owned and operated by one person, since an EIN allows you to open a separate bank account for your business. This protects the assets of your California LLC members.
Apply for an EIN by filing Form SS-4, Application for Employer Identification Number, with the IRS. A California incorporation law firm can guide you through this process, helping you file all necessary paperwork and preparing your LLC articles and agreements so you can meet all state requirements.
You must acquire a registered agent, which is an entity that receives legal and tax documents from the state, as well as documents from other entities, on behalf of your California LLC. Your registered agent can be a person or a business. The registered agent must use a California street address, and must be available during regular business hours. Your California incorporation lawyer can help you select and set up a registered agent. Usually a member of the LLC fills this role.
When naming your California LLC, keep in mind that the name must include “L.L.C.,” “LLC,” or “Limited Liability Company.”
After creating your California LLC, you are required to file an initial report with the state within the first six months of doing business.
Establishing a limited liability company with the help of an expert incorporation attorney will help insure that your assets are protected and that your California LLC is primed for success.
Formalities Recommended for California LLCs
Given the flexibility of LLCs, fewer formalities are required to run this type of business than are required to run a California corporation. Certain formalities are required for a California S – Corporation (see Formalities Required for California Corporations), but are also recommended for smooth and successful California LLC operation:
- Provide your members with shares.
- Document significant occurrences or changes in your California LLC.
- Hold annual meetings for members and, if applicable, managers. Take minutes and make important decisions official concerning your California LLC with written resolutions.
- Draft an operating agreement with the help of your California incorporation lawyer.
- Acquire a business license for your California LLC. Your incorporation attorney can help you with this process.
- File a Statement of Information every other year. File for the first time within the first year that the California LLC does business. The Statement of Information is accompanied by a $20 fee.
- Pay annual franchise tax- a minimum of $800 California LLC. You must first pay franchise tax within three months of creating your California LLC.
Talk to your California incorporation attorney to determine which internal formalities will benefit your California LLC. Your incorporation lawyer can also help you plan and conduct your initial annual meetings, while guiding you through formalities until you have the expertise to successfully and independently run your business.
Keep in mind that although California LLCs require few formalities compared to corporations, the guidance of a skilled incorporation lawyer is still essential, since without preparing and filing documents correctly and completing even optional formalities, your limited liability protection could be jeopardized.
California LLC Operating Agreement
An operating agreement is made between members of a California LLC, with the help of an experienced incorporation attorney. An operating agreement is a complex, important document, comparable to a partnership agreement, or the by-laws of a California corporation. A California LLC operating agreement performs several key functions, such as the following functions:
- Setting up the California LLC. An operating agreement may be used in court to demonstrate that an LLC is a distinct entity from its members, and therefore their assets are more likely to be protected from liability or debt incurred by the business.
- Delineating tasks and responsibilities of members regarding operations, finances, and management of the California limited liability company.
- Determining the interests of each member in the company. Interests indicate how much of the company each individual owns, including share of profits and tax requirements.
- Presenting rules for running the company.
- Establishing guidelines to distribute company gains and losses to members in a way that does not mirror ownership percentage. The LLC model is the only model which maintains this privilege. To take advantage of it correctly, you will require the services of an experienced California incorporation attorney.
In California, drawing up an operating agreement for your limited liability company is not required. However, if you don’t create an operating agreement, you must operate your California LLC based on the state’s default guidelines. In addition to limiting your control over the business, default guidelines for a California LLC may put assets belonging to you and other members at risk. This is because most default guidelines do not provide adequate separation between owner and LLC. Your assets may lack protection without a skilled California incorporation lawyer to help you create a unique and secure operating agreement for your LLC.
Keep in mind that in addition to protecting yourself and other members, creating an operating agreement with the help of your California incorporation lawyer provides significant flexibility, while clarifying points of confusion in the management and operation of your California limited liability company.
In writing your operating agreement, your incorporation attorney will override default guidelines set by the state regarding how to operate a California LLC, allowing you and other LLC members to maintain control. Your California incorporation attorney will ensure that none of the customized rules created for your limited liability company conflict with state restrictions.
Members and managers of a California LLC can make alterations to the operating agreement at any time. You are advised to do so with the help of a California incorporation attorney to avoid making changes that may inadvertently jeopardize your assets or cause legal problems for your California limited liability company.
Please call us at (619) 793-4827 to speak with a California Incorporation Lawyer
Keep in mind that this is not a comprehensive list of operating agreement functions and facts. Each operating agreement differs depending on the priorities of the California LLC it serves. Work with an expert incorporation law firm to ensure that your LLC operating agreement is beyond adequate.