Can an International Corporation Own a California LLC?

By Jeffry Olson, J.D.

Can an International Corporation Own a California LLC?

By Jeffry Olson, J.D.

A limited liability company, or LLC, provides its owners liability protection and pass-through taxation. State laws govern LLCs, and some states provide their own unique LLC legislation. The state of California allows international corporations to own California LLCs, as long as the company meets some additional requirements.

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Ownership of an LLC in California

In general, LLCs enjoy flexibility of ownership. Individuals, corporations, and other LLCs can be owners, or members, of an LLC. In California, international corporations can be members of an LLC as well. The international corporation can be the sole member of the LLC, or it can go into business with individuals, LLCs, or other corporations. All California LLCs must have a registered agent in the state of California, regardless of ownership.

Multi-member LLCs in California must draft operating agreements. The LLC does not have to file the operating agreement with the state, but it must draft the operating agreement prior to filing articles of organization, and it must keep a copy in its own files. Failure to draft and keep a copy of the operating agreement could result in loss of liability protection; in the absence of an operating agreement, creditors of the LLC could question the validity of the LLC and therefore its ability to protect the assets of its members.

Taxation Requirements

All LLCs in the state of California are subject to a minimum annual franchise tax, including foreign-owned LLCs. The annual minimum franchise tax is a flat fee plus a potential additional LLC fee based on the company's annual income.

In addition to California state tax filing requirements, LLCs must comply with federal tax requirements. By default, the IRS taxes single-member LLCs as sole proprietorships and multi-member LLCs as partnerships. Both may choose to be taxed as S corporations, but they must meet IRS requirements. Because a nonresident alien cannot own an S corporation, an international corporation may not own a California LLC and select to be taxed as an S corporation.

Professional LLCs

LLCs may engage in any lawful business activity in the state of California, with the exception of certain banking-related activities. Additionally, California law prohibits an LLC from providing professional services. Professionals may operate only as sole practitioners, partnerships, or professional corporations. The law defines “professional services" as services that require a certification, license, or registration: law firms, medical practices, or architecture firms, for example. A professional LLC may own a California LLC, but that LLC cannot provide professional services.

California law allows an international corporation to own an LLC. An international corporation can own a single-member LLC, or it can run the business with individuals, LLCs, or other corporations. The California LLC must meet all state and federal requirements, pay the applicable fees and taxes, and draft and file all required paperwork.

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