Legal Question in Business Law in California

Limited Liability Company

I've been reading about different types of partnerships/corporations, etc. and am interested in finding out more about LLC. These are the questions I have, please.

1. If a LLC does not indicate otherwise on its federal tax form, will the firm be taxed as a partnership or corporation?

2.If a LLC wants to reinvest its profits into its business rather than distribute them to its members, is it better to be taxed as a corporation, or a partnership?

3. If the members of a LLC have a dispute that their operating agreement does not cover and no statute applies, is the dispute governed by the principles of corporate law or partnership law?

4. Unless the LLC members agree otherwise,how are voting rights apportioned to each member? By captial contribution, degree of participation in management, or some other method?

5. One question about LLP. Generally speaking, what is the type of law that applies to a LLP? Corporate law, or partnership law?

Thanks so very, very much for your help in this. I'm trying to read and learn as much as possible before electing the right firm structure.

Regards


Asked on 1/15/02, 2:38 pm

2 Answers from Attorneys
Wayne Smith Wayne V. R. Smith

Re: Limited Liability Company

1. Probably a partnership, but check with the CPA. However, inadvertent failure to check a box will not change how the return was prepared - for an LLC. If the IRS challenged the return, an amended return could easily be filed to check the right box.

2. I doubt it makes any difference if the cash is actually invested in soome aspect of the business - but if you want to accumulate just cash, it is probably best to be a corporation. This is a complicated question requiring accountant analysis.

3. In CA, governed by the provisions applicable to LLC.

4. The general default is "one member-one vote." In an LLC, it is the managing member rules that are more important.

5. LLP is a special statute for partnerships, and is used primarily by licensed professionals who cannot use the LLC. It is a partnership with limited liability.

The choice of structure is very complicated and is best done with qualified professional consultation.

NOTE: Please understand that the information provided in this reply is for informational purposes only and does not create an attorney-client relationship. It also may not be complete, and is designed for general information to parties under California law. Before you make any decision that might possibly have legal implications, you should consult with our office, or another qualified professional, so that thorough legal advice can be provided in a manner that relates to your specific circumstances. Thank you.

Reply Posted By:

Wayne V.R. Smith

Attorney at Law

P.O. Box 3219

Martinez CA 94553

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Answered on 1/15/02, 3:06 pm
Ken Koenen Koenen & Tokunaga, P.C.

Re: Limited Liability Company

1. The LLC is not taxed, per se. The earnings are reported on the individual tax returns of the members based on their ppercentage of ownership.

2. There are numerous other considerations to the type of organization that you will want to form.

3. By the California Code for LLC's

4. Voting rights can be assigned in the operating agreement as a percentage of ownership. Otherwise, every member gets a vote.

5. A Limited Liability Partnership is designed for professionals, such as doctors, lawyers, CPA firms. This is different from a limited partner in a partnership.

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Answered on 1/15/02, 3:45 pm


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