California LLC Laws

by Lisa Magloff
    For income tax purposes, California treats the LLC and its owners in the same way the LLC is treated for federal tax purposes.

    For income tax purposes, California treats the LLC and its owners in the same way the LLC is treated for federal tax purposes.

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    A California limited liability company (LLC) is a type of business in which the owners, who are called members, have only a very limited personal liability for any company debts or court judgments against the company. Limited liability companies can also offer tax advantages for members such as allowing members to report the LLC's profits and losses on their personal tax returns. In California, LLCs are governed by the laws in the California Corporations Code.

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    Laws on Formation

    As in all states, a California LLC can consist of one or more members. The LLC is formed when the members file a form, called the articles of organization, with the California Secretary of State. California law also requires that the LLC have an operating agreement. This is a contract between the members that stipulates how the company will be run. It may include information such as how new members may be added, how the company will be managed and how profits and losses will be shared between members. California law requires notification to all members that the LLC will need to pay a yearly franchise tax.

    Naming Laws

    California law requires the name of every LLC to include the words “limited liability company” or the abbreviation “LLC” or “L.L.C.” as the last words in its name. The name cannot be the same as, or similar to, the name of any other business registered in California. The law prohibits company names from containing any words that may mislead the public as to the purpose of the LLC. Limited liability companies are also prohibited from using certain words in their names such as “bank,” “insurance company,” “trust” and “corporation.”

    Laws on Record Keeping

    Corporate law in California requires LLCs to maintain certain records as long as they are in business. These include a current list of the names and addresses of each member and an account of the financial contributions made by each member, a copy of the articles of organization and the operating agreement, and a copy of the LLC's tax documents and financial statements for the previous six years. All LLCs must also have a registered agent. This is a California resident who is authorized to receive legal and court documents on behalf of the LLC. Additionally, California LLCs are required by law to file an annual statement, listing the current names and addresses of the members, managers and registered agent, along with a confirmation of the LLC's name and operating status.

    Liability

    Members of a California LLC are not held personally liable for any court judgments against the company, or for any debts or obligations of the LLC, simply because they are members. However, California law does permit members to be held personally liable for debts and court judgments that arise when a member is in financial control of the company and the member's personal finances are mixed with the company's finances; this is called alter-ego liability. Members can also be held liable for debts and obligations that they have personally underwritten. California requires LLCs to carry appropriate insurance, depending on the type of business conducted, including liability insurance.

    About the Author

    Since graduating with a degree in biology, Lisa Magloff has worked in many countries. Accordingly, she specializes in writing about science and travel and has written for publications as diverse as the "Snowmass Sun" and "Caterer Middle East." With numerous published books and newspaper and magazine articles to her credit, Magloff has an eclectic knowledge of everything from cooking to nuclear reactor maintenance.

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