Business Formation FAQ

What is an LLC or limited liability company?

A limited liability company (LLC) is a company that offers corporate liability protection, but usually operates and is usually taxed as either a sole proprietorship or a partnership.

  • Owners of a LLC are referred to as members, and
  • the people who operate the LLC are called managers.

LLCs are either member managed or manager(s) managed.

  • A member managed LLC is one that is managed by all the members of the LLC, whereas
  • a Manager managed LLC is operated by one or more managers that may or may not be members.

How is an LLC formed?

The LLC is formed upon filing of the Articles of Organization with the Secretary of State and the members entering into either an oral or written Operating Agreement. Not all businesses can be an LLC in California, so you should consult with an attorney as to whether or not your business can be formed as an LLC.

To maximize corporate protection, it is important to seek legal advice as to:

  • whether an LLC is the best type of entity for your business,
  • how to properly form a LLC,
  • how to operate the LLC and
  • the on-going legal requirements once the LLC is formed

If I form an LLC am I protected from all the debts of the LLC?

The corporate protection granted for an LLC in general means that the members are not personally liable for the debts of the LLC. This protection is limited, and you should consult with an attorney to understand what liabilities the members and/or the managers are protected from and when personal liability exists.

What is a corporation?

A corporation is a separate entity that is formed for the benefit of its shareholders.

  • Owners of the corporation are called Shareholders.
  • Board of Directors make the major decisions of the corporation, and are elected at least annually by the shareholders.
  • Officers are employees of the corporation appointed by the board of directors to operate the day-to-day operations of the corporation, namely the President or Chief Executive Officer, Secretary and Treasurer or Chief Financial Officer at a minimum.

How do you form a corporation?

The filing of the Articles of Incorporation with the California Secretary of State begins the corporate formation. There are many more documents that an attorney can assist you to prepare and file to ensure the corporation is formed correct and complete.

To maximize corporate protection, it is important to seek legal advice as to:

  • whether a corporation is the best type of entity for your business,
  • how to properly form a corporation,
  • understanding the rights and responsibilities of the various roles in a corporation,
  • how to operate the corporation and
  • the on-going legal requirements once the corporation is formed

Does forming a corporation personally protect me from its debts?

The corporate protection granted for a corporation in general means that the shareholders, officers and directors are not personally liable for the debts of the corporation. This protection is limited, and you should consult with an attorney to understand what liabilities the shareholders, officers and directors are protected from and when personal liability exists.

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