The LLC is a creation of state law that combines limited liability protection for all of the equity owners without sacrificing the right of any owner to participate in the management of the enterprise. In California, LLCs are governed by the Beverly-Killea Limited Liability Company Act.
An LLC is a separate, legal entity formed by filing articles of organization with the Secretary of State. LLC statutes contemplate, but do not require, the adoption of an “operating agreement” or “regulations” to govern the operation and management of the LLC.
The members may reserve all management powers to themselves, in which case the members become mutual agents for one another in much the same way as a general partnership. Alternatively, members may opt for the decentralized management of the corporate form by delegating management powers to one or more appointed managers, and the managers will be solely responsible for contracting for debts or incurring liabilities on behalf of the entity.
Regardless of the management structure of the LLC, as a general matter, neither the members of an LLC nor its managers are liable for the debts or liabilities of the LLC. Assuming that all of the statutory requirements are satisfied, the LLC member’s liability to the LLC is generally limited to the extent of any unpaid capital contributions, including any capital required to be paid in the future on conditions stated in the articles of organization.
With respect to changes in ownership and continuity of existence, LLCs tend to be similar to general partnerships. In most cases, absent a contrary provision in the operating agreement, the LLC statutes provide that unless a proposed transfer has been unanimously approved by the other members, a transferee of a member’s interest cannot participate in the management of the LLC or become a member, although the transferee is entitled to receive the share of profits attributable to the transferred interest. As for the death, retirement, or other event of withdrawal of a member of an LLC, the LLC will be dissolved unless the statute provides for continuation of the business by all or some portion of the remaining members.
While the LLC was originally an alternative to multi-owner entities such as partnerships, recent changes in LLC and tax laws have led to widespread recognition of single-member LLC’s which provide limited liability for the owner-member and proprietorship tax treatment.
Tags: California Limited Liability Companies, Limited Liability Company, LLC
