How to Form an LLC:
California LLCs are formed by filing Article of Organization with the California Secretary of State. Once these Articles have been filed, the LLC is a distinct legal entity in the state of California. From there, LLC Formation requires drafting an operating agreement and determining tax options.
Drafting of Operating Agreement:
LLCs must have an operating agreement which creates the governing rules for the entity. This operating agreement will look different if the LLC has more than one member or is managed by members as opposed to managers.
How is an LLC Taxed?
For Federal tax purposes, LLCs that have just one member are typically taxed as a disregarded entity. For LLCs with two members, the entity is typically taxed as a partnership. LLCs can also elect to be taxed as either a C Corporation or an S Corporation.
What is the Minimum Franchise Tax Fee?
LLCs as well as Corporations are required to pay an annual minimum franchise tax fee of $800 per year. You can think of this as the cost of doing business in California and an insurance policy that provides you with liability protection.
How Does an LLC Provide Liability Protection?
Limited liability companies provide liability protection when the owners properly treat the LLC as a distinct legal entity. This means that the entity has its own bank account and observes all corporate formalities.
Why Should I choose a limited liability company?
A California limited liability company may be the right choice for your business. At LSG we can help with the formation process. For LLCs with more than one member, SLG can assist with drafting, reviewing and negotiating the operating agreement.
LLCs are a great choice for businesses that want liability protection but don’t intend on having investors with different rights. LLCs also have less rigorous corporate formality requirements making the entity an appropriate structure for small businesses or people looking to hold rental property in an LLC for liability protection.