What You Need to Know in Establishing Limited Liability Corporation

Limited liability corporation, as it is commonly but wrongly called, is said to have started from a business concept, which originated in Germany in 1892.

Back then, it is called Gesellschaft mit beschrankter Haftung, legally abbreviated as GmbH.

Literally translated, it means company with limited liability. Giving credits to its origin, the correct term therefore is Limited Liability Company – not corporation, legally abbreviated as LLC or L.L.C.

Back in the US, almost every state has their own LLC statutes governing LLCs operating within their territory. By 1996 however, the National Conference of Commissioners on Uniform Sale Laws adopted the Uniform Limited Liability Company act, which was revised in 2006.

In the State of California, limited liability companies are governed by the California Corporations Code starting from Section 17000.

Under the law, a limited liability company consists of one or more members, which may be:

•    Individuals

•    Partnerships

•    Limited partnerships

•    Trusts

•    Estates

•    Associations

•    Corporations

•    Other limited liability companies

•    Other business entities

Single member limited companies may be formed in California as of 1 January 2000.

Owners are simply called members, unlike partners or shareholders in partnership or corporations, respectively. But LLC and corporation can also be similar in that members of the LLC are also afforded limited liability and have pass-through taxes comparable to a partnership.

This limited liability allows its members to divide their profits in varying forms. Also, unlike corporations, LLCs are not required to conduct meetings, much more keep minutes of these meetings and record resolutions. LLC in short is easier to operate than a corporation.

The downside however is that LLC has limited lifespan unlike a corporation, which can exist for eternity. When a member dies or the company becomes bankrupt, LLC is dissolved.

For individuals who have plans of going public or issue employee shares in the future, LLC is not a good business structure of choice.

For those who are wishing to establish LLC in California, a completed Articles of Organization have to be filed with the Secretary of State. The filing fee is now around $70 for domestic LLC.

For foreign LLC, a completed Application for Registration with accompanying certificate of good standing from the home state must also be filed with the Secretary of State. The filing fee is the same with domestic LLCs, $70.

Every LLC, domestic or foreign, doing business in California or filing the necessary application and registration, is subject to the limited liability tax of $800 per annum. The tax is paid for each taxable year until a Certificate of Cancellation is filed.

To cancel LLC, a Certificate of Dissolution and a Certificate of Cancellation have to be filed unless all the members vote to dissolve. When members vote for dissolution, the Certificate of Cancellation may be dispensed with. In some cases, a Short Form Certificate of the Cancellation may be filed.

For foreign LLC, the filing of Certificate of Cancellation would be enough to cancel the LLC.

In both instance however, certain franchise tax requirements must also be paid.

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