Limited-liability companies (LLCs) have been used in several states to organize various businesses. The state of California did not allow the use of LLCs until 1994. To structure a set of rules and guidelines for the consistent setup, operation and maintenance of LLCs, California enacted legislation to provide this information for businesses and individuals interested in using the LLC structure.
The Beverly-Killea Act of 1994
The Beverly-Killea Limited Liability Company Act governs LLCs in California. The text of the agreement covers and outlines specific guidelines for the setup and structuring of a California LLC, including types of activities it may engage in and rights of the members of the LLC. The agreement essentially allows an LLC to operate as any legal business type, except for a bank, trust company or insurance company. The act was amended as of January 1, 2000, to allow for single-member LLCs to operate in California.
Forming an LLC
An LLC forms upon filing of the articles of organization with the California secretary of state. The LLC also has a requirement to file a statement of information within 90 days of filing its articles of organization. This statement documents the name and mailing address of the LLC, as well as names and addresses of the manager, members and CEO.
How LLCs Function
An LLC can have one or more members and functions as a stand-alone entity with all the legal powers of an individual in terms of carrying out related business activities. The members of the LLC need to draw up an operating agreement describing the relationships between members and the LLC, along with the mechanism for splitting profits among partners, how the members will manage the LLC, voting rights for members, how to admit or remove a member and how to dissolve the LLC. LLC managers do not necessarily need to have membership status in the LLC.
LLCs have a large degree of flexibility and simplified record keeping since they do not require the annual meetings or minutes of a corporation. They allow members to dictate how the business will be managed, whether one member oversees or management is by committee with all members participating. Certain types of business transactions are suited for an LLC since it combines the flow-through tax treatment of partnerships with the limited liability protection of a corporation. LLCs became a frequently used vehicle for real estate acquisitions in California after the enactment of the Beverly-Killea legislation.
Fees for LLCs in California
As of 2011, an $800 annual fee is charged by the state to maintain an LLC. Additionally, if the LLC has income, the state will charge an additional annual fee based on the LLC's total income. This includes income not only from California, but also worldwide. The fee caps at $12,000 and $5 million of income. This may become significant for businesses that make use of many LLCs.
Cynthia Gaffney has spent over 20 years in finance with experience in valuation, corporate financial planning, mergers & acquisitions consulting and small business ownership. She has worked as a financial writer and editor for several online finance and small business publications since 2011, including AZCentral.com's Small Business section, The Balance.com, Chron.com's Small Business section, and LegalBeagle.com. A Southern California native, Cynthia received her Bachelor of Science degree in finance and business economics from USC.