Limited Liability Company (LLC)

General Format

A limited liability company is a hybrid business entity. It has a separate legal existence and generally offers liability protection to its owners (called members). All members must enter into an operating agreement by either oral or written agreement.

It can be classified as either a partnership or a corporation for tax purposes. The Franchise Tax Board will automatically classify the LLC with two or more members as a partnership unless the company elects to be taxed as a corporation. If the LLC is classified as a partnership, the profit or loss flows through to the owners/members; the LLC is subject to an annual minimum state tax plus an annual fee based on total income.

Alternately, if it is classified as a corporation, it is treated like any other corporation and is required to pay tax on its net income, including the applicable minimum state tax.

An LLC may be managed by managers who are not members, if provided for in the articles of the organization. However, if the LLC is managed by managers, they alone have authority to bind the LLC; members and directors have no authority in these matters. Otherwise, the LLC is managed by its members. In this case, every member is an agent of the LLC and has the power to bind the LLC and the right to vote on merger or dissolution. Members and managers of the LLC have the same degree of limited liability as a shareholder of a corporation.

Registration Procedure for Domestic Companies

A domestic limited liability company registers as an LLC by completing the Articles of Incorporation (Secretary of State Form LLC-1) and submitting it to the Secretary of State along with a filing fee. This form identifies the principal executive office, the principal office in California and the agent for service of process.

Registration Procedure for Foreign Companies

The foreign limited liability company registers as an LLC by completing a Limited Liability Company Application for Registration form (Secretary of State Form LLC-5) and submitting it to the Secretary of State along with a filing fee. This form identifies the principal executive office, the principal office in California and the agent for service of process.

The Limited Liability Company Application for Registration must be accompanied by an official certificate that verifies the limited liability company exists in good standing with the country or state of its formation. This certificate must be obtained from the appropriate office in which the original LLC was registered and presented with an English translation where applicable. The certificate must have been issued within six months prior to submittal to the Secretary of State. The Secretary of State’s Office will review the Limited Liability Company Application for Registration for statutory compliance, and then return a file-stamped copy of the LLC-5 along with a Certificate of Registration to the limited liability company. Foreign limited liability companies registered in California must file an annual Statement of Information. Forms are mailed to the LLC from the Secretary of State to the last address of record approximately three months prior to the due date.

Changes or Amendments

To register any change in a domestic LLC, a Certificate of Amendment to the Articles of Incorporation (Secretary of State Form LLC-2) must be filed and a $30 fee submitted.

To register any change in a foreign LLC, one or more authorized persons must complete a Limited Liability Company Application for Registration Certificate of Amendment (Secretary of State Form LLC-6) and submit it to the Secretary of State along with the $30 filing fee.

Cancellation or Dissolution

To register cancellation or dissolution of a foreign or domestic LLC, one or more authorized persons must complete a Limited Liability Company Certificate of Cancellation (Secretary of State Form LLC-4/7) and submit it to the Secretary of State. There is no filing fee for this form.

NOTE: On September 29, 2006, the Governor of California signed Assembly Bill 2341, eliminating the need for a tax clearance certificate. This legislation streamlined the process for dissolving, or canceling the existence of business entities. Before this law was enacted, certain business entities, i.e., foreign corporations had to meet requirements of the Franchise Tax Board, before the Secretary of State (SOS) would grant the business’s request to terminate. Passage of AB 2341 remedies this situation. For more information, refer to Eliminating the Need for a Tax Clearance Certificate later in this section.

For additional information regarding registration of limited liability companies, contact:

Secretary of State
Document Filing Support Unit P.O. Box 944225 Sacramento, CA 94244-2250
Tel: (916) 657-5448
Website: http://www.sos.ca.gov/business/be/forms.htm#llc

Forms and References