Mazis Law Group

Characteristics of a Limited Liability Company

A Limited Liability Company (LLC) is a business entity that has one or more members organized pursuant to the California Revised Uniform Limited Liability Company Act. Two characteristics of an LLC are:

  • Limited Liability. The member(s) of a limited liability company are not personally liable for any debts, liabilities or other obligations of an LLC. A member’s liability is limited to the investment in the limited liability company.
  • Status as a Partnership for Income Tax Purposes. A limited liability company that is classified as a partnership for income tax purposes avoids the double taxation of a C corporation that is first taxed on corporate earnings and then on the shareholders’ dividends. A single member LLC may choose to be classified as a disregarded entity separate from its owner or as a corporation for income tax purposes.

Articles of Organization

An LLC must have at least one member that may be individuals, partnerships, trusts, corporations, other limited liability companies, or other types of entities. To form a limited liability company, the Articles of Organization must be filed with the California Secretary of State. The Articles of Organization must include the following:

Name of the LLC.

  • Street address of the principal business office.
  • Name and address for the initial agent for service of process.
  • A statement whether the LLC will be managed by all members or by one or more managers.
  • The following statutory purpose statement: “The purpose of the limited liability company is to engage in any lawful act or activity for which a limited liability company may be organized under the California Revised Uniform Limited Liability Company Act.”

Operating Agreement

Although not required, the members of the LLC should enter into an operating agreement. A written operating agreement may avoid potential future disagreements among the members or between members and managers. The operating agreement should address the following:

  • Rights and duties of the members.
  • If the LLC is managed by the member(s) or manager(s) and the details regarding such management.
  • Member contributions.
  • Capital structure and capital accounts.
  • Allocation of profits and losses.
  • Withdrawal of members.
  • Transfer and assignment of membership interest and restrictions thereof.
  • Tax matters member.
  • Provisions regarding accounting records and reports.
  • Dissolution and winding up.
  • Other provisions, as needed.

Other Required Filings

Once the Articles of Organization are filed, the LLC is required to file:

  • Statement of Information. The initial Statement of Information must be filed with the California Secretary of State within 90 days after filing the Articles of Organization and then every two years thereafter. If the Statement of Information is not filed as required, the LLC will be subject to suspension and monetary penalties.
  • Taxpayer Identification Number. Form SS-4 must be filed with the Internal Revenue Service to obtain the taxpayer identification number for the LLC to be used when filing tax returns.
  • California Department of Financial Protection & Innovation. Pursuant to California law, a membership interest in a limited liability company is considered a security. A security issued in California must either be qualified or exempted. To claim an exemption, a notice must be filed with the Department and a fee must be paid in an amount based on the total value of the securities being offered.

Contact a limited liability company formation attorney at Mazis Law Group to assist you with properly forming your LLC and protecting your business.