Formation Issues

Don’t Use a PO Box for LLC’s Designated Office

Question:  Line 3.a of the California Secretary of State’s Articles of Organization, Form LLC-1, requires the initial street address of the LLC’s designated office in California.  Can the designated office be a U.S. post office box?

Answer:  No.  If the LLC’s designated office in California is a U.S. post office box the California Secretary of State will reject the Articles of Organization.  If the LLC’s mailing address is different from the address of the LLC’s designated office in California it is ok to enter a U.S. post office box on line 3.b of the Articles of Organization, Form LLC-1 for the LLC’s mailing address.

By | 2015-04-29T22:19:58+00:00 April 29th, 2015|Categories: Articles of Organization, FAQs, Formation Issues|0 Comments

How Do I Acquire an Ownership Interest in a California LLC as Separate Property?

Question:    I am married and live in California.  I intend to form a single member California LLC.  I know that California community property law my spouse will automatically own  one half of my interest in the LLC.  How do I acquire my LLC interest as my separate property?

Answer:  California residents who are married or who are domestic partners own assets one of two ways: (1) as community property or (2) as separate property.  Community property ownership means each spouse or partner owns an undivided one half of the total interest in the asset.  Separate property ownership means that one person owns 100% of the property and the other person does not own any interest in the property.  Because California law provides that all property acquired by one spouse or partner is automatically community property unless it comes from a gift or an inheritance both California residents will own the new LLC membership interest as community property unless the non-owner signs a document in which he or she disclaims any ownership interest in the LLC.

When we form a California LLC and the one of the members tells us that he or she is to own the membership interest as separate property we prepare a document called a “Disclaimer of Interest” for the non-owner to sign.  When signed the non-owner acknowledges that he or she does have have any ownership interest in the LLC membership interest.

By | 2016-12-13T21:20:13+00:00 April 7th, 2015|Categories: FAQs, Formation Issues, How Do I|0 Comments

California Agent for Service of Process

Every new limited liability company formed in California and every LLC formed outside California that intends to register to do business in California must appoint an agent for service of process, aka resident agent.  New LLCs must designate the agent for service of process in the Articles of Organization, Form LLC-1.

The agent for service of process can be a person or a corporation that has complied with Corp C §17701.13(c).  Before a corporation (domestic or a foreign corporation registered to do business in California) can become an agent for service of process, it must file the certificate required by Corp C §1505 with the California Secretary of State. A general partnership, limited partnership and a limited liability partnership can never be an agent for service of process in Item 4 of Form LLC-1.

If a natural person is the agent for service of process the person must be a California resident.  Corp C §17701.139c). The person’s street address cannot be a post office box, but it can be a residence address or a business address.  The address should never include a c/o or “in care of” because the California Secretary of State will probably reject the Articles of Organization.

By | 2016-12-13T21:20:13+00:00 March 22nd, 2015|Categories: Articles of Organization, California Secretary of State, Formation Issues|0 Comments

Original Signature on Articles of Organization

Question:  When I file the Articles of Organization for my new LLC with the California Secretary of State will the Secretary of State accept Articles on which the organizer’s signature is a facsimile rather than an original signature?

Answer:  Yes, however, California law requires that the person who signs the Articles of Organization as the organizer retain the Articles of Organization with the original signature on it for five years.  See Corp C §17.1(d).  After it approves the Articles the Secretary of State will return the approved Articles with original signature to the company.  If it contains an original signature, then put the document in a safe place for the next five years.

By | 2016-12-13T21:20:13+00:00 March 18th, 2015|Categories: Articles of Organization, FAQs, Formation Issues|0 Comments

Can a California LLC Have an Oral Operating Agreement?

Question:  My California LLC has three members who never signed an Operating Agreement.  The members agree from time to time as to certain terms and conditions applicable to the LLC such as what actions the manager can take without the approval of all of the members.  If the members of a California limited liability company agree on an oral Operating Agreement is it legally enforceable?

Yes:  California RULLCA Section 17701.02(s) states:

Operating agreement” means the agreement, whether or not referred to as an operating agreement and whether oral, in a record, implied, or in any combination thereof, of all the members of a limited liability company, including a sole member.”

Caution:  As LLC attorneys who have formed 4,400+ LLCs my father and I have seen too many disputes among members who never signed an Operating Agreement and who cannot agree on LLC issues.  LLC members who don’t have a signed Operating Agreement and rely instead on oral agreements are “cruisin” for a “bruisin.”  Oral agreements result in he said she said disputes among members.  If the members resort to litigation to settle a dispute it is a roll of the dice as to who the jury will believe.

If your California LLC does not have an Operating Agreement signed by all of the members then do yourself and the other members a big favor and arrange for all the members to sign a good, custom Operating Agreement drafted to comply with California’s new Revised Uniform Limited Liability Company Act that took effect on January 1, 2014.

By | 2015-02-25T20:03:50+00:00 February 9th, 2015|Categories: FAQs, Formation Issues, Operating Agreements|0 Comments

Can People Agree on the Contents of an Operating Agreement before Forming an LLC?

Question:  I understand that California LLC law does not require my multi-member California LLC to have an Operating Agreement signed by all of the members.  However, I know that it is prudent that every California LLC have its members sign an Operating Agreement.  Several of us want to form a California LLC, but I am concerned that after we form the LLC we may not agree on the terms and conditions of the Operating Agreement.  Can the prospective members of a to-be-formed California LLC agree on the contents of an Operating Agreement before they actually file the Articles of Organization and form the LLC?

Answer:  Yes.  California RULLCA Section 17701.11(c) states:

“Two or more persons intending to become the initial members of a limited liability company may make an agreement providing that upon the formation of the limited liability company the agreement will become the operating agreement. “

I recommend that if you are considering forming a California LLC with multi-members that would involve a lot of money, services or members’ time, all of the prospective members should definitely sign a contract in which they agree that on forming the LLC each of them will sign the Operating Agreement that is attached as an exhibit to the contract.  The agreement to sign an Operating Agreement must be created as part of a legally binding contract.

Call me, California LLC attorney Richard C. Keyt, J.D., M.S. (accounting), at 844-552-6468 ext. 3 if you need a contract among prospective members to sign an Operating Agreement.

By | 2016-12-13T21:20:14+00:00 February 8th, 2015|Categories: FAQs, Formation Issues, Operating Agreements|0 Comments

Must a CA LLC Formed before 2014 Amend Its Articles of Organization?

Question:  My California limited liability company was formed before January 1, 2014, the date California’s new LLC act became effective.  Do I have to amend the LLC’s Articles of Organization filed with the California Secretary of State?

Answer:  If a manager managed California LLC was formed before 2014 and its Articles of Organization do not state that the LLC is managed by a sole manager or by more than one manager, the LLC must amend its Articles of Organization and specify the type of management.  California Revised Uniform Limited Liability Company Act Section 17702.01(b)(5) states “If the limited liability company is to be manager-managed, the articles of organization shall contain a statement to that effect.”

To amend your California LLC’s Articles of Organization file one of the following documents with the California Secretary of State:

Warning:  If you want your California LLC to be manager managed the Operating Agreement must also contain certain manager managed language.  Stated another way, a California LLC is member managed unless the following two conditions are satisfied:

  1. The Articles of Organization state the the LLC is manager managed, and
  2. The Operating Agreement contains the statutorily required manager managed language.

See California RULLCA Section 17704.07(a).

By | 2015-02-16T17:13:07+00:00 January 14th, 2015|Categories: Articles of Organization, CA LLC Formation, CA LLC Statutes, FAQs, Formation Issues|0 Comments

California LLC Naming Rules

Question:  What are the rules / statutory requirements for naming a new California limited liability company?

Answer:  The name of a CA LLC:

(1) must not be a name that is “likely to mislead the public” and must be distinguishable in the records of the California Secretary of State from the name of an existing LLC or an LLC name that has been reserved by another party.  Note: Names are not considered distinguishable if the only difference is a limited liability company ending;

(2) must include the words Limited Liability Company, or the abbreviations LLC or L.L.C. The words Limited and Company may be abbreviated to Ltd. and Co., respectively;

(3) may not contain the words bank, trust, trustee, incorporated, inc., corporation, or corp.; and

(4) must not contain the words insurer or insurance company or any other words suggesting that it is in the business of issuing policies of insurance and assuming insurance risks.

If the Articles of Organization for a new LLC has a name that does not satisfy all of the above CA LLC naming requirements the California Secretary of State will reject the Articles of Organization.

See California Corporations Code Section 17701.08 and 17708.05.  An LLC name is reserved pursuant to California Corporations Code Section 17701.09 using the Secretary of State’s Name Reservation form.

California LLC Seal Scam

Question:  My friend hired a document preparer to form his California LLC.  While reviewing the LLC binder I saw that it contained an LLC seal, a device that makes a raised imprint on paper that the LLC’s name.  Does a California LLC need a seal?

Answer:  No.  California LLC law does not require California LLCs to have a seal.  No business, vendor or independent contractor will ask for your LLC’s seal on a document.   The only purpose of the LLC seal is to allow a document preparer to make a prospective LLC purchaser think the document preparer is giving the purchaser something of value.

By | 2015-02-19T22:32:20+00:00 May 19th, 2014|Categories: FAQs, Formation Issues|0 Comments