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Operating an LLC

Does an LLC need to have more than one member?

Several states permit single-member LLCs while others require two or more members. The number of members in an LLC dictates the taxation that is assessed. For example, an LLC with one member is typically taxed as a corporation or disregarded entity whereas an LLC with more than one member is typically taxed as a partnership.

Do I have to have annual LLC meetings?

In California and many other states, there is no requirement for an LLC to hold annual member/manager meetings in order continue to receive the liability protection provided to officers/directors and shareholders of a corporation with such a requirement.

How is voting conducted in an LLC?

Typically, voting rights are directly proportional to the ownership interest of its members, unless stated otherwise in the Articles of Organization.

Can shares of an LLC be sold?

As long as the Articles of Organization dictate or members with a majority interest in the LLC approve, member shares may be sold.

What dictates the lifespan of an LLC?

In the past, many states required a termination date for LLCs. However, today, unless specified otherwise in the Articles of Organization, most states allow for the perpetual existence of an LLC. Effectively this means that there is no set limitation on the length of time an LLC can exist. Only death, withdrawal, resignation, bankruptcy of a member, or abandonment can suspend an LLC.

Is an Operating Agreement required for an LLC?

Either a verbal or written Operating Agreement must be established as part of the formation of an LLC either prior to or directly after filing the Articles of Organization.

What forms must be filed to create an LLC?

Legally, the Articles of Organization must be drafted and filed with the state office in which the LLC is established. There are also various fees that are required at this time.

How is an LLC taxed?

For federal income tax purposes, an LLC is taxed as a partnership. However, at the local level, an LLC has several taxation options. It can choose partnership status in order to reduce taxation. Or an LLC can choose to be taxed as a C Corporation (see IRS form 8832 Entity Classification Election). Sometimes, the owners of an LLC elect to be taxed as a “disregarded entity” where the owners are entirely responsible for reporting the income from the LLC on his or her personal tax returns.

What is the organizational structure of an LLC?

The members of an LLC own the business, and its organizational structure can resemble either a corporation or a partnership depending on who is charged with the responsibility to manage the business. If the members of the LLC will not participate in the day-to-day activities of the business and chooses to use managers to oversee, its structure will resemble a corporation. However, if the members of the LLC are responsible for the day-to-day activities of the business, the structure will resemble a partnership.