California LLC San Diego
California LLC San Diego Summary
Operating a business as a California LLC combines the best parts of partnerships and corporations:
• Limiting personal liability against claims from lawsuits and creditors;
• Raising capital from investors by issuing membership interests;
• Passing through profits and losses to members, thus avoiding double taxation;
• Access to capital gains taxes upon disposition of appreciated assets;
• Reducing self-employment taxes for shareholders earning wages (depends upon taxation type selected); and
• Flexible structuring of management and ownership with minimal formal governance.
All California limited liability company formations by San Diego Corporate Law include attorney-drafted articles of organization and operating agreement, federal EIN application, and company records book with membership certificates.
California LLC San Diego Details
A California LLC (limited liability company) is a non-corporate business entity that provides its owners, known as members, with protection from personal liability for business debts, liabilities, and other obligations. While normally taxed as a partnership, the members of a California LLC may elect for corporate tax treatment.
One or more individuals, partnerships, limited partnerships, trusts, estates, associations, corporations, LLCs, or other entities may form a California limited liability company. California Corporations Code §§ 17001(t), (x), (ae).
A California LLC is formed by filing articles of organization with the Secretary of State. California Corporations Code C §§ 17050(a), 17051. The filing fee for articles of organization is currently $70.00. California Government Code §12190(b).
Members (owners of a California LLC) must enter into an operating agreement dictating how the California LLC will operate financially and operationally. While operating agreements may be oral, it is strongly suggested that the operating agreement be written.
A member of a California LLC is not liable for the debts and obligations of the limited liability company, unless: (1) the member personally guarantees a debt or obligation; (2) the member engages in tortious conduct; (3) the member receives improper distributions of the LLC’s assets; or (4) the member intermingles personal and corporate matters (alter ego; piercing the corporate veil).
A member who acts as a manager of a California LLC may have increased liability stemming from his or her actions as a manager.
The names of the members of a California LLC are not a matter of public record unless the member serves as a manager of the limited liability company.
Management of a California limited liability company is dictated by the operating agreement. A California LLC may be managed by all members, some members, or by one or more non-members.
Members contribute assets to a California LLC in exchange for membership interests. Membership interests may be expressed either in units of membership or by percentage of ownership. California Corporations Code §§ 17100(a). Unless otherwise specified in the articles of organization or the operating agreement, members are not required to contribute funding in excess of the initial capital contributions made. California Corporations Code § 17200(b).
A California limited liability company may create more than one class of membership with different voting and distribution rights between the classes. California Corporations Code § 17102.
Treatment of a California LLC membership interest as a security is determined on a case-by-case basis. Unless all members engage actively in the management of the California limited liability company, the membership interests must be treated as a security. California Corporations Code §§ 25000-25707. Membership interests that are effectually meaningless when compared to other membership interests must also be treated as securities (e.g. Member 1 has 95% interest, Member 2 has 5% interest). Id.
Federal Securities Issues
Federal securities laws should be considered when issuing membership interests in a California limited liability company. Regulatory filings may be required either to qualify an offering and sale or to receive an exemption.
California Securities Issues
All offers and sales of securities in California require qualification with the Commissioner of Corporations unless either the transaction or the security itself is exempted from qualification. California Corporations Code §§ 25000-25707; 10 California Code of Regulations §§ 250.9-260.617.
Other State Securities Issues
The securities laws of other states (“blue sky” laws) may also apply to offers or sales of California LLC membership interests made outside California.
A California LLC is not generally subject to income Taxation Like a partnership or Subchapter S Corporation, the net income, loss and tax credits of a California LLC are “passed through” to the membership of the LLC.
A California limited liability company may elect to be taxed as if it were a regular corporation (C-Corp).
A single member California LLC is permitted by the California Corporations Code, however, for purposes of federal and California income taxes, a single member California limited liability company is treated as sole proprietorship unless the sole member elects to be taxed as a regular corporation (C-Corp) or subchapter “S” corporation (S-Corp).
Unless otherwise specified in the articles of organization or operating agreement, a non-member receiving a membership interest by assignment or transfer only becomes a member of a California LLC after an affirmative, majority vote of the membership followed by the execution of an operating agreement. California Corporations Code §§ 17100(a), 17303(a).
Non-members obtaining a membership agreement that is not ratified by the membership and/or not followed by the execution of an operating agreement have an economic interest in a California limited liability company but no voting or management rights. California Corporations Code §§ 17001(n), (z), 17106.
The operating agreement of a California LLC may include one or more provisions terminating the limited liability company or one or more membership interests in the LLC on the happening of certain events. California Corporations Code §§ 17100(c), 17005(b).
A California LLC may be dissolved upon an affirmative vote of the majority of membership interests or at a time or upon events specified in the articles of organization and/or a written operating agreement and the filing of a certificate of dissolution by the LLC’s management. California Corporations Code § 17350.
Despite the time or events specified in the articles of organization and/or in the written operating agreement, a majority interest of a California limited liability company may avoid dissolution by filing a certificate of continuation. California Corporations Code § 17357.
The organization of a California LLC for $995.00 assumes a one member or a married couple who jointly file federal and state income tax returns. The organization of a California LLC for $1,320.00 assumes more than one member where all members manage and have equal rights of ownership. The organization of manager-managed LLCs or multi-member LLCs where not all members have equal rights of ownership are available by quotation.