Form a Limited Liability Company (LLC)

A Limited Liability Company (or “LLC”) is the easiest and most straightforward separate business entity to establish, and is also often times the next “step” in the business start-up progression after the “sole proprietorship.”

Contrary to a sole proprietorship, the formation of an LLC does create a legal entity separate from owner or owners, typically termed “members” in the business’ operating agreement. Because of this, LLCs in California – just like their corporate counterparts – are subject to the state’s annual $800 minimum tax.

The choice to form an LLC, rather than conduct business as a Sole Proprietorship or Corporation, could be based on liability concerns, tax considerations, or ease of operation.

In California, there are four primary factors to consider once you’ve decided to form an LLC:

  • What you want your business name to be;
  • Who should serve as your “registered agent”;
  • Who will own the business (members), and who will manage it;
  • Does your business require a license?

Business Name

The name that you select for your business is crucial – and must be original. The California Secretary of State will not file Articles of Organization for an LLC that is too similar to an already existing LLC. Further, an internet presence is important for most businesses, and if the domain name is already in use by someone else, you may have a problem with branding.

Finally, your name must be original to avoid infringing upon the Trademarks, Service Marks, or Copyrights of other businesses – or you may receive a “cease and desist” letter from another business that holds rights in the name that pre-date yours.

Our attorneys are quickly able to check and reserve a proposed name with the California Secretary of State, and we can ensure your domain is available (if you haven’t already), and also perform a simple name check with the United States Patent and Trademark Office to further clear the use of your proposed name.

Registered Agent in California

When filing Articles of Organization, the California Secretary of State requires a new business to name someone located in the state of California who consents to accepting service of process (legal documents), and who will forward them to the business in a timely fashion.

Any resident individual, and some firms including ours, can serve as a registered agent for businesses in California. However, the requirements of the agent include having a California street address, and being available at that address during normal business hours.

Who Will Own and Manage the LLC

Ownership of an LLC is through “member” interests, and those interests are typically set out in an “operating agreement.” An operating agreement is a document that describes the operations of the LLC and sets for the contractual agreements between the members (owners) of the business.

While not formally required by the state of California, it’s a good idea for all LLCs to have them to avoid misunderstandings and conflict between owners. Similar in concept to the bylaws of a corporation, an operating agreement will describe the operations and procedures followed in the business. It defines how the funds of the LLC are contributed, and how they are distributed to the owners/members.

Further, the agreement provides evidence of separation between the business and the owners – critically important for liability purposes.

Finally, for multi-member LLCS, the operating agreement will explain the powers and appointment of the “managing” member or members; the individual(s) responsible for the operation and management of the business.

 

Licensing

Depending on the type of business your LLC will be conducting, the state of California and many of the counties and cities within the state, may require you to obtain various licenses to operate, including sellers permits that are obtained through the California Board of Equalization (BOE).

Our attorneys understand the needs and goals of business owners, and are happy to discuss your options with a free 20-minute consultation.