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First Steps for Forming Your California Limited Liability Company

Forming a California limited liability company (“LLC”) is similar to forming a California corporation. There are some important differences, however, and an experienced San Diego corporate attorney can provide advice and counsel if you are in the process of setting up a corporate entity for your business.

The main difference in setting up an LLC is determining the structure and how the LLC will be managed. With an LLC, there are many options. By contrast, corporations generally have the same management structure, so there is not too much variation. Shareholders own the corporation; they elect the board of directors which runs the company; the board hires the President/CEO and other senior management who conduct the day-to-day operations.

In California, when forming an LLC for more than one person, there can be two types of management structures — member-managed and manager-managed. If your LLC is member managed, the day-to-day conduct of the business is conducted by all of the members (with roles defined by the Operating Agreement). If your LLC is manager managed, the day-to-day operations are conducted by whoever is hired/appointed as the manager. Under either structure, some LLCs will hire employees that will act in a manner similar to a CEO or a corporate president. It is possible to switch from one to the other as the business succeeds, but, always, the first decision is how to structure the management from the beginning.

With new businesses, most owners start with member-management. An example might be a new online retail business. Where an LLC is used as an investment vehicle, a manager-managed LLC is more common. An example here might be a new oil and gas production LLC. Part of the decision about whether to be member managed or manager managed depends on expected future growth. If your new LLC is expected to seek new members and owners, but you want to maintain control, then a manager-managed LLC is likely the best option.

Next, you need to create and approve the LLC Operating Agreement. Corporations are governed by their bylaws; LLCs are governed by their Operating Agreements. See Cal. Corp. Code, §17701.1 et seq. The best business practice is to have your Operating Agreement custom-prepared by an experienced San Diego corporate attorney. The Corporations Code sets a number of default rules that can be modified in your Operating Agreement. For example, the Code allows members to vote at meetings by the use of proxies. However, that can be prohibited or limited by the Operating Agreement. See Cal. Corp. Code, §17704.07(f). There are many other examples of statutory provisions that can be modified to fit the particular needs of your LLC.

Once these foundational decisions are made, your LLC is formed in a manner similar to forming a corporation. A proper and unique name must be used, filings must be made with the California Secretary of State and fees paid, and other steps taken to properly issue the membership interests. Your LLC will also need biennial maintenance to ensure that it remains in good standing.

Contact San Diego Corporate Law

For more information, call Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard focuses his practice on business law, transactional, and corporate matters, and he proudly provides legal services to business owners in San Diego and the surrounding communities. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.

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