Our clients ask us questions about LLCs all the time. Here are some of the most frequently asked questions:
Question and Answer Section:
Q: What do I need to do to set up an LLC in California?
A: To set up an LLC in California, you will need to choose a name for your business and register it with the Secretary of State. You must also file Articles of Organization and create an Operating Agreement that complies with state law. Additionally, you need to obtain any necessary business licenses and tax permits, and you should consider opening a business bank account.
Q: Are there any restrictions on the name I can choose for my LLC?
A: Yes, the name must include the phrase “limited liability company” or “LLC,” and it must be distinguishable from other existing corporations, LLPs, or other entities registered in California. It also cannot imply government approval or use words restricted by law.
Q: Do I need to open a business bank account?
A: Yes, it is recommended that you open a business bank account to keep your personal and business finances separate. This will also make filing taxes easier.
Q: What documents do I need to file with the state?
A: You will need to file Articles of Organization and an Operating Agreement with the Secretary of State. These documents contain important information about your LLC such as its name, registered agent information, ownership details, management structure, and more. An attorney can help you write the Operating Agreement to ensure that it complies with California law.
Q: Do I need additional licenses or permits?
A: You may need to obtain additional licenses depending on the type of business you are running and your city’s regulations. Check with your local government office for more information. Additionally, you should check with the IRS to make sure you have all of your tax documents in order. You may need to obtain an Employer Identification Number (EIN) and apply for any necessary federal or state permits.
Q: What is the timeline for setting up an LLC in California?
A: Setting up an LLC typically takes about one to two weeks, depending on how quickly you can file the required documents and obtain any necessary licenses or permits. However, it is possible to expedite the process paying an additional fee to the California Secretary of State.
Q: Do I need to hire a lawyer when setting up my LLC?
A: Although it is not legally required, we highly recommend consulting with an attorney when forming your LLC so that you can ensure that all of the documents are prepared properly. An attorney can also help you write an Operating Agreement that complies with California law.
Q: What is a Statement of Information?
A: The Statement of Information is a biennial form that all California LLCs must file with the Secretary of State every other year. This document contains information about the business such as its registered agent, mailing address, and contact info. It also lists any current members or officers in the company.
Q: When do I have to file a statement of information in California?
A: LLCs must file a Statement of Information within 90 days after filing the Articles of Organization. The document then needs to be filed every other year thereafter. Failure to file may result in administrative dissolution by the state.
Q: Does an LLC need to keep records?
A: Yes, it is important for an LLC to keep accurate records of all business transactions, such as tax documents, contracts, financial statements, and other important information. This will help you maintain compliance with state regulations and track your company’s progress.
Q: Can a California LLC be an S-Corp?
A: Yes, a California LLC can elect to be taxed as an S-Corporation, which could lower its tax burden and give it additional legal benefits. To do this, the LLC must file Form 2553 with the IRS. An attorney can help ensure that you meet all of the requirements for electing S-Corp status.
Q: When should I file for an S-Corp election?
A: Generally, the best time to file for an S-Corp election is within 75 days of forming your LLC. However, you can make this election any time as long as it is done before the start of the taxable year you wish to be taxed as an S-Corporation.
Q: Do I have to be an American Citizen to file for an S-Corp?
A: No, foreign persons can own and manage an S-Corp in California. However, the LLC must meet all of the requirements for filing Form 2553 with the IRS. Additionally, all owners of the LLC must have valid immigration status in order to be eligible for taxation as an S-Corporation.
Q: What kind of immigration status does not qualify for S-Corps?
A: Any owner with a non-immigrant visa, such as a Visitor Visa or Student Visa, does not qualify for S-Corp taxation in California. Additionally, any owner with an expired (or soon-to-expire) non-immigrant visa will not be eligible. Finally, any LLC that has multiple owners with different immigration statuses will not be eligible for S-Corp taxation.
Q: How many shareholders can you have in an LLC?
A: California LLCs can have an unlimited number of shareholders. However, all shareholders must be listed in the Articles of Organization and they will need to sign either the Operating Agreement or a separate shareholder’s agreement. Additionally, it is important to keep in mind that S-Corporations are limited to no more than 100 shareholders.
Q: Why is an S-Corp limited to 100 Shareholders?
A: The IRS limits S-Corps to no more than 100 shareholders in order to prevent them from being classified as publicly traded corporations. This limitation helps ensure that the LLC remains privately owned and allows it to retain its tax advantages. Additionally, all shareholders must be individuals (no other business entities) and they must be US citizens or permanent.
Q: Do shareholders share in the liability of an LLC?
A: No, shareholders of an LLC typically do not share liability for the company’s debts and obligations. Instead, liability is limited to the owners (known as members) of the LLC, who are generally only responsible for the amount they have invested in the business. This is known as a Limited Liability Company (LLC). However, certain circumstances can lead to shareholders being held liable, such as when they personally guarantee a loan or fail to observe corporate formalities.
Q: What is the difference between an LLC and an S-Corp?
A: An LLC is a business structure that provides limited liability protection for its members (owners). On the other hand, an S-Corp is a tax designation that allows its owners to be taxed as a corporation rather than individuals. While an LLC can choose to be taxed as an S-Corporation, there are several factors to consider before doing so. These include the number of shareholders, their immigration status, and potential differences in tax rates. Ultimately, it is important to seek the advice of an attorney or accountant to determine which option is best for your LLC.
Q: Can the managers of an LLC be held liable to employees in California?
A: While the members of an LLC have limited liability protection, managers may still be held liable to employees in certain circumstances. This includes situations involving wages, overtime violations, and other labor law violations. Additionally, California has several employment laws that protect workers from discrimination and harassment in the workplace—managers must ensure that these laws are observed at all times.
Q: Do all members of an LLC have to contribute money?
A: No, not all members of an LLC must contribute money. However, in order to be a valid LLC under California law, all members must contribute something of value. This could include money, services, or property. Additionally, the Operating Agreement should detail how much each member is responsible for contributing and what type of contributions are allowed.
Q: can I sell part of my LLC?
A: Yes, you can sell part of an LLC in California. This is known as a membership interest transfer and it requires the approval of all members involved in the transaction. Additionally, it is important to make sure that all relevant documents are properly filed with the Secretary of State prior to completing the transaction. Finally, any money exchanged in a membership interest transfer is subject to taxation in California.
Q: What other fees or taxes may an LLC have to pay in California?
A: In addition to the annual tax, LLCs in California may be subject to other taxes and fees depending on the type of business they are engaged in. These can include sales and use taxes, franchise taxes, and excise taxes.
