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Limited Liability Company (LLC)

An LLC is a newer form of business entity. It has advantages over corporations and partnership. The LLC’s main advantage over a partnership is that, like the owners (shareholders) of a civil law corporation, the liability of the owners (members) of an LLC for debts and obligations of the LLC is limited to their financial investment. However, like a general partnership, members of an LLC have the right to participate in management of the LLC, unless the LLC's articles of organization and operating agreement provide that the LLC is to be managed by managers.


Key Features:

• An LLC may have one or more owners, and may have different classes of owners. In addition, an LLC may be owned by any combination of individuals or business entities. An LLC that is taxable as a partnership can achieve both conduit tax treatment and limited liability protection under civil law, similar to an entity taxable as an S corporation. However, an LLC taxable as a partnership does not have the ownership restrictions that apply to entities taxable as S corporations.

• If the LLC has a single member, it will be disregarded as separate from its owner, and will be treated as a sole proprietorship or a division of its owner, unless it elects to be taxable as a corporation.

• In general, all the owners (members) are shielded from individual liability for debts and obligations of the LLC.

• An LLC is formed by filing “articles of organization” with the California Secretary of State prior to conducting business.

• Forming an LLC is simpler and faster than forming and maintaining a civil law corporation.

• LLCs do not issue stock, and are not required to hold annual meetings or keep written minutes, which a corporation must do in order to preserve the liability shield for its owners.

• Either before or after filing its articles of organization, the LLC members must enter into a verbal or written operating agreement. A formal, written agreement is advisable.

• An LLC is typically managed by all its members, unless the members agree to have a manager handle the LLC’s business affairs.

If you need help in forming an LLC, please contact Legal Support Center.