Business Entities - Limited Liability Company

In the state of California, the following are the business entities that are allowed: 

1. Sole Proprietorship
2. Limited Liability Partnership
3. General Partnership
4. Limited Partnership
5. Limited Liability Company
6. Corporations (C-Corporations and S-Corporations)

In the next few blogs, I will be going over the filing requirements for each of these entities, how the entities are created and what forms are required for the entities to file their taxes.  I will also go over the major advantages and disadvantages of each one.  Keep in mind that I am not an attorney, so all I am giving is my opinion.  If you want a legal opinion, please consult an attorney.  I do not dispense legal advice.

Limited Liability Company
A California LLC generally offers liability protection similar to that of a corporation but is taxed differently.  Domestic LLCs may be managed by one or more managers or one or more members.  In addition to filing the required documents with the Secretary of State, an operating agreement among the members as to the affairs of the LLC and the conduct of its business is required.  The LLC does not file the agreement with the Secretary of State but maintains it at the office where the records are kept.  To form an LLC in California, Articles of Organization (Form LLC–1) must be filed with the California Secretary of State’s office.

An LLC is a hybrid business entity that blends elements of partnership and corporate structures. 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, and profit or losses flow through to its members.  An LLC may not be formed by certain types of businesses that provide professional services requiring a state professional license, such as legal or medical. For California income tax purposes, an LLC will be classified as a partnership if it has more than one owner and will be treated as a disregarded entity if it has only one member.  However, an LLC is allowed to elect to be treated (taxed) as a corporation. To be taxed as a corporation, the LLC files an election on Federal Form 8832, Entity Classification Election, with the Internal Revenue Service. California conforms to the federal entity classification regulations commonly known as "check-the-box regulations" that allow an LLC to elect to be taxed as a corporation.