The Different Types of LLCs
Starting a business in California? You need to be sure that you select the right legal entity. Companies need the best foundation in order to thrive. A limited liability company (LLC) offers several potential advantages. Lynnette Ariathurai is a Fremont business formation attorney who has experience with the full range of LLCs. We can help you find the right one for your company. In this article, you will find an overview of the different types of LLCs in California.
What is a Limited Liability Company (LLC)?
The California Franchise Tax Board explains that an LLC is “a business entity that blends partnership and corporate structures.” It is a business structure that offers favorable liability protection while offering the tax flexibility and relative ease of formation of a partnership or sole proprietorship. In California, LLCs are created by filing Articles of Organization with the Secretary of State. The owners of an LLC are called members. A key advantage is that they are generally not personally liable for the company’s debts or legal obligations. Still, LLCs must comply with specific requirements in the state, including paying an annual franchise tax and filing regular reports.
An Overview of the Three Types of LLCs in California
Single-member LLCs
The most straightforward type of LLC in California is a single-member LLC. It only has one owner (member), but it still offers full personal liability protection while keeping management and tax filing relatively simple. It is a popular choice for solo entrepreneurs, consultants, or freelancers who want legal separation between personal and business assets. The member can elect to be taxed as a sole proprietorship (more common) or corporation (an option). To be clear, there is no need to divide decision-making. The single owner retains full control over daily operations of the business.
Single-member LLCs must still comply with California’s annual franchise tax and filing obligations.
Multi-member LLCs
Multiple parties can own and operate an LLC in California. A multi-member LLC is a company that has two or more owners. Multi-member LLCs offer a collaborative ownership structure with shared responsibilities. This may be the right entity for businesses with multiple partners. Each member has an ownership interest. The LLC will allocate profits, losses, and responsibilities according to an operating agreement. Multi-member LLCs should have a professionally drafted operating agreement. Most multi-member LLCs are taxed as a partnership. With that being said, corporate tax treatment is an option. It provides limited liability for all members. That means that personal assets are protected from business liabilities.
Manager-managed LLCs
Finally, in California, a manager-managed LLC is a type of LLC where the members (owners) designate one or more managers to handle day-to-day business operations. That manager may or may not actually be one of the members. The model is ideal when investors want limited involvement in management or when the business needs professional management. Members retain ownership rights but delegate operational control. That can help to streamline decision-making. Of course, non-manager members must put a great deal of trust into the people who oversee day-to-day business operations. Notably, California allows both member-managers and non-member managers.
Contact Our California Business Formation Lawyer for LLCs Today
Lynnette Ariathurai is a California business formation lawyer who provides solutions-focused guidance and support to clients. If you have any questions about the different types of LLCs, please do not hesitate to contact us today for a fully confidential consultation. With an office in Fremont, we provide business formation services throughout the Bay Area.