The limited liability company entity is a relatively new form of business organization in California. The authorization of the LLC form of business under state statutes is intended to give flexibility to businesses in meeting their tax and business objectives. California Corporations and LLC Companies registered on October 12, 2009 have been certified by the Secretary of State. A limited liability company combines some of the best characteristics of the partnership and corporation while eliminating some of their less desirable characteristics. The owners (called "members") of a limited liability company, like shareholders of a corporation, are not generally liable for the debts of the business. Yet, like a partnership, double taxation is avoided because the profits of the company are not subject to income tax liability imposed upon the company. Furthermore, unlike limited partners in a limited partnership, members of a limited liability company may actively participate in management without becoming subject to unlimited personal liability. The members of an LLC enjoy significant freedom under California law to fix their rights and obligations by agreement as to most matters.
Since California's enactment in 1996 of The Beverly-Killea Limited Liability Company Act which provides for the formation of the limited liability company, this form of business has become a popular alternative to incorporating. In 1997, the IRS began to allow LLCs to elect tax treatment. Now, by default, a Limited Liability Company is taxed as a partnership, (with pass-through tax treatment ) unless the members specifically designate to be taxed at the entity level in the same manner as a corporation. There is a big difference between filing Articles of Organization and forming an LLC in California. This section explains the procedure of California Limited Liability Company formation as well as ongoing affairs of the Company. Steps to form an LLC in California are outlined, together with business licensing and taxation considerations. California has amended the Beverly-Killea Act to expressly authorize the formation of a single-member LLC. State law also now allows for perpetual duration of a limited liability company existence.
Forming an LLC in California
The formation of a Limited Liability Company begins with filing of articles of organization and the execution of an operating agreement by the members of the company. While filing Articles of Organization begins the legal existence of the LLC, it doesn't provide any structure to the entity. The Articles of Organization are filed with the California Secretary of State's Office and disclose:
LLC Operating Agreement
Operation Agreement is very important part for Limited Liability Company. In California all Limited Liability Companies are required under state law to have a Limited Liability Company Operating Agreement. The operating agreement may be entered either before or after the filing of the articles of organization and should address at least the following items: