A Limited Liability Company (LLC) is a “hybrid” entity of a corporation and a partnership. An LLC provides the limited liability for its owners, who are known as members, with the tax characteristics of a partnership.
Formation
In California, an LLC is formed by filing an Articles of Organization with the California Secretary of State. Thereafter, the members enter into an operating agreement among themselves to govern the LLC’s business affairs, managerial rights, and structures the financial relationships between members. California does not require an operating agreement, however, it is strongly suggested that every LLC, even a single members LLC, enter into an operating agreement.
Limited Liability
LLC’s provide limited liability protection to its members. In order to maintain limited liability the Corporation must be correctly established and maintained by the owners.
Permissible Businesses
An LLC may engage in any business activity except for the banking business, the business of issuing insurance policies, trust company business, or any profession services (see professional corporations.) An LLC’s articles or operating agreement may limit the type of business the LLC may engage.
Management and Control
LLC’s are structured to provide the members more flexibility than corporations. The management of the LLC may be may be vested in all of the members or one or more managers. An LLC which is managed by all of its members is known as a “member-managed LLC” and an LLC managed by managers is known as a “manager-managed LLC”.
In a member-managed LLC, each member is an agent of the LLC and any member may bind the LLC. A member-managed LLC is a more simple structure which permits every member to act on behalf of the business.
A manager managed LLC establishes a two level structure of members and managers. The members are passive investors and do not engage in the management of the company. The managers control the business of the company and manage the day to day operations. In a manager-managed LLC a manager or managers are designated as the agents of the LLC. A manager does not need to be a member or have any ownership interest in the LLC. Typically, managers are elected by the majority interest vote of the members.
An LLC is not required to have officers (President, Vice President, Secretary, Treasurer, etc…) unless the operating agreement provides for such.
Back to the Top
|