How To Go About California LLC Formation

There is a lot of independence involved in forming an LLC. California LLC formation offers advantages that are otherwise not available to corporations or limited partnerships. Many issues have to be decided prior to the formation of a LLC, including the laws in California governing the LLC formation, the tax situation, and the role of LLCs as partnership. However, the LLC may be taxed as another entity if the members so require.

LLC is basically an abbreviation of Limited Liability Company. The law requires that the name of the company should include these words, i.e. Limited Liability Company or its abbreviation or any other short form to signify the three words. A California LLC can be member-managed or manager-managed. The former is similar to a partnership, in the sense that each of the members can equally represent the company or each member is equally responsible to and for the company. The latter on the other hand is where only the designated manager can bind the company.

The Beverley-Killea Limited Liability Company Act was enacted in 1996. This act provides for the formation of LLCs. It is commonly used as an alternative for incorporating. To begin with the formation of an LLC, Articles of Organization are to be filed. The members should sign a memorandum of agreement. The Articles are to be filed with the Secretary of State. How to go about forming an LLC in California and the advantages of doing so are discussed herein.

In case of an operating agreement not being drawn up, the provisions in the statute become applicable. Such an Agreement may be entered into before or after the Articles are filed. The name of the LLC to be included in the Articles should not be deceptively similar to any other California LLC or international LLC permitted to do business in California. The Beverley-Killea Act was amended to permit the LLC with a single member. Further, the law now also allows the perpetual duration of an LLC.

The Articles of Organization to be filed must include the Name of the LLC, the purpose for which the company is formed, a description of the nature of business basically including the principal business activity and also information to indicate which member and/or how many of them will manage the LLC. Though the legal identity of the LLC comes into existence after filing the articles, the same does not render any structure to the Company.

Once the legal entity of the LLC comes into existence, the minimum membership required is two. Though there is provision for a single member company in California it can only be done in limited circumstances, as provided by the state act. The interests of the members of the company cannot be transferred unless otherwise provided by the articles of agreement. The LLC is like a combination of a partnership and a corporation, although the formalities to be carried out are much less than in the case of a corporation.

California LLC formation thus has lots of advantages. It offers more flexibility in managing a company. Also, there is lack of rigid procedural requirements. The informality ensures freedom of working. There are no management restrictions and limitations relating to stocks and shareholding.