Registraion Of Llc In California

Registration of LLC in California: Limited Liability Company (LLC) A limited liability company (LLC) or is "domestic limited liability company" means an entity having one or more members. 17001(t)i. In other words a limited liability company (LLC) is a new business entity or a legal form of Business Company that provides limited liability to its owners. A limited liability company will be consisting of one or more members who may be individuals, partnerships, limited partnerships, trusts, estates, associations, corporations, other limited liability companies or other business entities. The members of a limited liability company are afforded limited liability similar to shareholders of a corporation and have pass- through taxes comparable to a partnership. Features: • owners have limited liability for the entity's debts and obligations, • LLC income and losses are normally passed through to the owners as if it were a partnership. • An LLC filing eliminates personal legal and financial liability, save taxes, and protects personal assets. • LLC is not a corporation or a partnership • may be called a limited liability corporation, • owners are called members not partners or shareholders • number of members are unlimited and may be individuals, corporations, or other LLC's • Members Taxed On Share of Company Income (Profits). Taxes Paid on Personal Tax Return

Advantages of LLC: A limited liability company (LLC) has many advantages as a form of business entity: Legal entity separate from Individuals Limited liability: the owners (also called as members) of the LLC, are protected from liability for acts and debts of the LLC. • Members cannot be held personally liable for debts unless they have signed a personal guarantee. • No double Taxation/no corporate income tax: Profits taxed at the member level and not at the LLC level. • Single member: Can be set up with just one natural person involved • No General Meeting and minutes: No requirement of an annual general meeting for shareholders • No loss of Power: No loss of power to a board of directors (although an operating agreement may provide for centralization of management power in a board or similar body). • •

Specific period/Perpetuity: LLC’s can continue for a specific period as agreed or it can be unlimited (Perpetual). • Less paper work: Much less administrative paperwork and recordkeeping. • Assignment of membership interests: Membership interests of LLCs can be assigned, and the economic benefits of those interests can be separated and assigned, providing the assignee with the economic benefits of distributions of profits/losses (like a partnership), without transferring the title to the membership interest • Flexible Profit Distribution: Limited liability companies can select varying forms of distribution of profits. Unlike a common partnership where the split is 5050, LLC have much more flexibility. Profit and loss can be allocated differently than ownership interests • Easier to Raise Capital •

LLC Disadvantages While a limited liability company (LLC) offers many advantages over other forms of business entity, there are also some disadvantages. Some of the drawbacks to selecting an LLC over another entity are: Earnings of most members of an LLC are generally subject to selfemployment tax. By contrast, earnings of an S corporation, after paying a reasonable salary to the shareholders working in the business, can be passed through as distributions of profits and are not subject to self-employment taxes. • Since an LLC is considered a partnership for Federal income tax purposes, if 50% or more of the capital and profit interests are sold or exchanged within a 12month period, the LLC will terminate for federal tax purposes. • If more than 35% of losses can be allocated to non managers, the limited liability company may lose its ability to use the cash method of accounting. • A limited liability company which is treated as a partnership cannot take advantage of incentive stock options, engage in tax-free reorganizations, or issue Section 1244 stock. • There is a lack of uniformity among limited liability company statutes. Businesses that operate in more than one state may not receive consistent treatment. • In order to be treated as a partnership, an LLC must have at least two members. An S corporation can have one shareholder. Although all states allow single member LLCs, the business is not permitted to elect partnership classification for federal tax purposes. The business files Schedule C as a sole proprietor unless it elects to file as a corporation. • Minority discounts for estate planning purposes may be lower in a limited liability company than a corporation. Since LLCs are easier to dissolve, there is greater access to the business assets. Some experts believe that limited liability company discounts may only be 15% compared to 25% to 40% for a closely-held corporation. • Conversion of an existing business to limited liability company status could result in tax recognition on appreciated assets. •

Limited Life: Corporations can live forever, whereas a LLC is dissolved when a member dies or undergoes bankruptcy. • Going Public: Business owners with plans to take their company public, or issuing employee shares in the future, may be best served by choosing a corporate business structure. • Added Complexity: Running a sole-proprietorship or partnership will have less paperwork and complexity. A LLC may federally be classified as a soleproprietorship, partnership, or corporation for tax purposes. Classification can be selected or a default may apply. • It may be more difficult to raise financial capital for an LLC as investors may be more comfortable investing funds in the better-understood corporate form with a view toward an eventual IPO. One possible solution may be to form a new corporation and merge into it, dissolving the LLC and converting into a corporation. • Many states, including Alabama, California, Kentucky, New York, Pennsylvania, Tennessee, and Texas, levy a franchise tax or capital values tax on LLCs. (Beginning in 2007, Texas has replaced its franchise tax with a "margin tax".) In essence, this franchise or business privilege tax is the "fee" the LLC pays the state for the benefit of limited liability. The franchise tax can be an amount based on revenue, an amount based on profits, or an amount based on the number of owners or the amount of capital employed in the state, or some combination of those factors, or simply a flat fee, as in Delaware. Effective in Texas for 2007 the franchise tax is replaced with the Texas Business Margin Tax. This is paid as: tax payable = revenues minus some expenses with an apportionment factor. In most states, however, the fee is nominal and only a handful charge a tax comparable to the tax imposed on corporations. • The principals of LLCs use many different titles—e.g., member, manager, managing member, managing director, chief executive officer, president, and partner. As such, it can be difficult to determine who actually has the authority to enter into a contract on the LLC's behalf. • Subject to Government Regulations • Annual Reporting Requirements • Cannot Raise Capital Through Issuance of Stock •

Governing Law: In California Sections 17000-17005 of California corporation codeii will govern the LLC. The title also known and cited as the Beverly-Killea Limited Liability Company Act.

Classification of LLC:

In California LLC’s can be classified into two: Domestic (California) LLCDomestic limited liability company means a corporation organized under the laws of California state. Sections.167.3, 17000(t)iii,17001(K), Foreign ( out–of–state or out–of–country) LLC: Foreign limited liability company" means either (1) an entity formed under the limited liability company laws of any state other than this state, or (2) an entity organized under the laws of any foreign country Sec.17001.(q), 17001. (s) The laws of the state or foreign country under which a foreign limited liability company is organized will govern the organization, internal affairs, liability, and authority of its managers (members) of foreign LLC..

How to form a LLC in California: Documents required for registration of domestic LLC: The creation of an LLC begins with filing of articles of organization with the state office of secretary of state and the execution of an operating agreement by the members of the company. 1.

Articles of Organization (LLC-1) Section 17050(a)), along with the filing fee.

You need to provide folloving information in the form: the name of the limited liability company; cannot include the words bank, trust, trustee, incorporated, inc., corporation, corp., insurer, or insurance company. The abbreviations LLC, L.L.C., Ltd. and Co. are permitted. Finally, the name must not be the same as or misleadingly similar to the name of any California LLC or any foreign LLC qualified to do business in California. • the LLC's purpose; • initial agent for service of process- name of initial agent for service of process. if an individual,address of initial agent for service of process in californiaThe agent for service of process is the designee who will accept service of process if the company is sued. This can be a corporation or an individual who is a resident in California, and who has agreed to serve in this role • Management: if the LLC will be managed by: one manager; more than one manager; a single member; or all limited liability company members. •

a description of the type of business that constitutes the principal business activity of the limited liability company; • Additional information if any. •

2. statement of information (Form LLC-12)iv along with the filing fee, needs to be filed within 90 days of filing articles of organization. (Calif. Corporation Code §17060,). The Statement of Information includes: The name of the co. Secretary of state file number. State or place of organization Address of principle executive office/ the address of the company’s principal business office. • California address where records are maintained • Name and address of CEO if any • Name and address of manager/managers or member/members • Agent for service of process • Type of business/A statement of the nature company’s business activity, • • • •

Operating Agreement : (important for LLC Governance) Sec.17001. (ab) and 17050. (a) An operating agreement: An operating agreement is an agreement among limited liability company ("LLC") Members governing the LLC's business, and Member's financial and managerial rights and duties. Although it is not required to be filed with the secretary of state, it is very important to have one. If one is not used state law –default provisions of the LLC will govern. It is better always to have operating agreement before filing statement of information. LLC shall continuosly maintain a copy of operating amendments to if any in the state(Sec. 17058. (a) (5)) LLC operating agreement may consists of • • • • • • •

The name of LLC Definitions of terms Laws governing the agreement term Principal place of business Agent for service of process Commencement of operations The rights and duties of members;

agreement

and

Contribution of cash, property, or services by members and other issues relating to capital structure; Members' percentage interests in the business, • Management of the llc, control of the business, • Election of the manager,powers of the manager • Contractual authority officers • Limitations on liability of the managers and • Maintenance of accounting records and delivery of financial reports and tax information to the members; • Distributions of profits to the members; • Allocations of losses; • Management duties; • Meetings of members and managers; • Voting requirements; • Disposition or assignment of ownership interests of members; • Termination, expulsion, withdrawal and admission of members; • Dissolution and winding up of llc • Conditions of dissolution • Order of payment of liabilities upon dissolution • Liquidation • Procedures for amending the operating agreement. • Books and records, fiscal year • Tax matters • Indemnification • Liability of members • Liability of manager and • Required arbitration of disputes • Reference • expenses • Rules and procedures enforcement • Jurisdiction and venue •

$800 Annual Cost :Make an annual tax payment of $800 to the California Franchise Tax Board as the annual cost for doing business. Sec.17050.(d)and Section 17941 of the Revenue and Taxation Code

5. LLC-12R Statement of Information Renewal- if any amendment is made to the statement of information, requires to be filed in LLC-12R

Documents required for registration of Foreign LLC: 1.Certificate of Good Standing from home state or country: One needs to obtain certificate of good standing from the companies home state.

2. Application for Registration as a Foreign Limited Liability Company (LLC5)v name under which the foreighn LLC propose to register and transact business in California • name of the foreign llc if different from above • date of formation of LLC , state or country as to place • agent for service of process • Compulsory statutory statement stating-in the event the above agent for service of process resigns and is not replaced, or if the agent cannot be found or served with the exercise of reasonable diligence, the secretary of state of the state of california is hereby appointed as the agent for service of process of this foreign limited liability company. • address of the principal executive office • address of the principal office in california, if any •

3. Statement of Information Under Calif. Corporation Code §17060, the LLC must file with the Secretary of State a Statement of Information (Form LLC 12) within 90 days of the filing of the Articles of Organization. The Statement of Information includes: The name of the co. Secretary of state file no. State or place of organization Address of principle executive office/ The address of the company’s principal business office. • California address where records are maintained • Name and address of CEO if any • Name and address of manager/managers or member/members • Agent for service of process • Type of business/A statement of the nature company’s business activity, • • • •

The names are not required to be identified in the Articles, although the information must be filed with the Secretary of State in the Statement of Information (Form LLC-12) within 90 days of filing the Articles of Organization. (Section 1715(b).) 4. Statement of Information Renewal(LLC-12R) – needs to be submitted only when there is changes to the statement of information. 5. Operating agreement: Operating agreement of the home state where the LLC is registered will govern the LLC. However one needs to maintain the copy of operating agreement in California. Registration of LLC through California business portal

1. search a California Business Portal through Google or directly go to http://www.sos.ca.gov/business/, click on business entity to search for business name. 2. click on business search or directly visit http://www.sos.ca.gov/business/ check availability of name 3. search the name you wish to register/proposed name: if the name searched, is not found, it can be believed that no company exists in such name and you can reserve such name. However, make sure that nothing is similar already registered. 4. to register the name- go to LLC name availability- click on Reserving a Name, then click on name reservation request form or directly visit http://www.sos.ca.gov/business/corp/pdf/naavreservform.pdf 5.Fill up the form by choosing 3 names send the completed form to the Secretary of State (SOS) with a $10 check. Processing time is typically 10 days. It can be mailed with self addressed envelop addressed to to Secretary of State, Name Availability Unit, 1500 11th Street, 3rd Floor, Sacramento, CA 95814. It can also be submitted in person. The name will be reserved for 60 days. 6.After receiving LLC name reservation, visit http://www.sos.ca.gov/business again and click on Forms, Samples & Fees, go to business entities, go to Limited Liability Companies. Download and fill out ‘Articles of Organization (LLC-1)’, (if it is Foreign Limited Liability Company download ‘Application for registration’ Form LLC 5) The completed form along with the applicable fees can be mailed to Secretary of State, Document Filing Support Unit, P.O. Box 944228, Sacramento, CA 94244-2280 or delivered in person to the Sacramento office, 1500 11th Street, 3rd Floor, Sacramento, CA 95814. Statement of information for Domestic and foreign LLC: Filing statement of information for Domestic and foreign LLC is one and same- Statement of Information (Form LLC-12), fill out the form and Completed forms along with the applicable fees can be mailed to Secretary of State, Statement of Information Unit, P.O. Box 944230, Sacramento, CA 94244-2300 or delivered in person to the Sacramento office, 1500 11th Street, Sacramento, CA 95814.

i

http://law.justia.com/california/codes/corp/17000-17005.html

ii

http://law.justia.com/california/codes/corp/17000-17005.html

iii

http://law.justia.com/california/codes/corp/17000-17005.html

iv

http://www.sos.ca.gov/business/llc/forms/llc-12.pdf

v

http://www.sos.ca.gov/business/llc/forms/llc-5.pdf