Making Sure Your California Limited Liability Company Is In Proper Compliance – By Jeffrey R. Matsen

7:20 am Uncategorized

Overview of an LLC

A limited liability company (“LLC”) is a business entity which has the legal liability protection of a corporation, but is normally taxed either as a disregarded entity, if there is only one member, or a partnership if there are two or more members (“Members”). The LLC can either be member managed which is a form of direct management where the members (partners) each take part in the management of the company or manager managed which means that there is a manager that acts like a general partner who operates and runs the company.

Formation of an LLC

There are a lot of issues of entity selection that are important to be reviewed before one forms a limited liability company. The equity and tax structure of the Members needs to be examined and a determination has to be made whether the LLC should be member managed or manager managed. It is important to review these matters with a knowledgeable attorney and your CPA before the entity is formed. Often times a draft of an operating agreement is prepared before the LLC is actually formed. The operating agreement sets forth the management structure of the entity, the financial and equity structure, the tax structure and covers many other very important and significant issues. The actual formation of the LLC is accomplished by filing the Articles of Organization (Form LLC-1) with the Secretary of State. Thereafter, usually obtains a Taxpayer Identification Number. For an Offshore LLC, there must be an entity classification election Form 8832 filed with the IRS.

An LLC can have only a single Member in which case normally the LLC is disregarded as an entity for tax reporting purposes. This means that the tax information relating to the company is actually set forth on the Member’s own personal tax return and no federal tax return is required for the LLC. If there are two or more members, the LLC is normally taxed as a partnership and K-1s are issued to the Members for their own tax reporting purposes.

Maintaining the LLC

California requires that an LLC must pay an annual Franchise Tax of $800.00. The $800.00 fee must be paid to the Franchise Tax Board on the 15th day of the 4th month after the beginning of the fiscal year. For the first year, it is the 15th day of the 4th month from the date the LLC was organized. This $800.00 fee is required for every taxable year of the existence of the LLC.

LLCs are subject to a Gross Receipts Tax imposed by the California Franchise Tax Board. For LLCs whose revenue is between $250,000 and $499,999, the additional fee is $900. The fee increases to $2,500 for revenues between $500,000 and $999,999; to $6,000 for revenues between $1,000,000 and $4,999,999, and to $11,790 for revenue of $5,000,000 or more. See California Corporations Code Section 17942(a)(1-3).

An LLC must also file a Statement of Information with the Secretary of State’s office within 90 calendar days of the LLC formation. The Statement of Information must be filed yearly commencing with the end of the formation month. A $25.00 filing fee accompanies the Statement.

The LLC is an entity entirely independent and autonomous from its members and management. No personal expenditure or private transactions should be made by the LLC. All loans and other transactions pertaining to the LLC and the members should be carefully documented and only entered into after consultation with an attorney and CPA.

If an LLC is required to do business outside of its domiciliary state, it must file an application to do business in the foreign state. Some states like Nevada, for instance, require that an LLC file an Initial List of Managers for the first year and an Annual List of Managers every year thereafter until the LLC no longer transacts business in Nevada.

Steps to Ensure Your LLC Is In Compliance

Keeping track of your annual filings, company records and tax documents can be time consuming and aggravating. If you have several LLCs or LLCs that are tied into your Estate Plan, our firm has a yearly maintenance program that can substantially alleviate the time and worry you expend with respect to your LLCs and Estate Plan. For a reasonable annual fee, we make sure that your Estate Plan is properly maintained and that your LLC/LLCs are kept in proper compliance. Should you desire to further discuss the formation or maintenance of an LLC, please contact Wealth Strategies Counsel. We are here to serve you and have considerable experience and skill in the area of business entity selection and LLC formation and maintenance. Our lead partner, Jeff Matsen, has taught Continuing Education courses for other lawyers and professionals for many years. When it comes to business entity selection and LLCs, Jeff is the lawyer’s lawyer.

Get started by contacting our Orange County asset protection estate planning law firm as soon as possible.

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