May an LLC Manager Be a Minor?
This post discusses whether an LLC manager (the person who manages a limited liability company) may be a minor.
In May a Minor Form an LLC?, I discussed whether the organizer of an LLC may be a minor. In that post, I noted that only five states – Colorado, Illinois, Minnesota, Oregon and Texas – prohibit a minor from organizing an LLC. So, those are the states to which I paid the closest attention in writing this post. (more…)
Why Aren’t All LLCs Manager-managed?
This post about manager-managed limited liability companies is based on a Quora question that I answered. Please see Why are not all LLCs manager-managed?
In this post I will refer to California law. I expect that the law of many, if not all, other states is similar.
Default is Member-managed…
The default is that a limited liability company is member-managed. Corporations Code Section 17704.07(a) states: “A limited liability company is a member-managed limited liability company unless the articles of organization contain the statement required by paragraph (5) of subdivision (b) of Section 17702.01.” (more…)
How to Form an LLC
I am writing this post about how to form an LLC (limited liability company) because of a question that I answered on Quora. Please see What are the basic requirements for forming of a LLC in US?
The following is an overview of the steps required to form an LLC properly in the U.S.: (more…)
CA-RULLCA Receives Corrections Two Years Later
In RULLCA Brings New LLC Laws to California in 2014 , I explained how California’s version of the Revised Uniform Limited Liability Company Act (“RULLCA” or “CA-RULLCA” – Corporations Code Sections 17701.01 – 17713.13 ) was to take effect January 1, 2014. This post describes changes to CA-RULLCA that took effect on January 1, 2016.
Most of the changes were minor clean-up of the sort that one expects when major new legislation is adopted. However, some of the changes are noteworthy. (more…)
Under RULLCA Operating Agreements Have Limits
At the beginning of this year, the California Revised Uniform Limited Liability Company Act (RULLCA) took effect. (See RULLCA Brings New LLC Laws to California in 2014.) This post discusses how under RULLCA operating agreements for LLCs have a wide variety of limits.
RULLCA operating agreements‘ limits are addressed in Corporations Code Section 17701.10. Unfortunately, that section’s discussion of mandatory provisions is pretty difficult to understand for the following reasons. (more…)
LLCs: Why an Operating Agreement is Important
This post discusses why an operating agreement is important for every limited liability company (LLC). It expands upon an answer I provided on Quora several months ago. (See In simple terms, why are operating agreements important?)
An operating agreement is an agreement among the members of an LLC. It addresses relations among the members and how the LLC will conduct its affairs. (more…)
How Do We Add a New LLC Member?
Recently, I have seen several limited liability company (LLC) members ask, online, how they can add a new LLC member. This post provides the answer, which is pretty simple.
Short answer: One must amend the Operating Agreement to add a new LLC member.
Slightly longer answer: An Operating Agreement (OA) can be oral or written. A written OA is better because it clearly documents the members’ agreement concerning the LLC.
Do LLC Officers Have a Fiduciary Duty?
Officers of a corporation have a fiduciary duty to both the corporation and its shareholders. (See California Officers Need to Be More Careful than Directors.) I recently had to consider, for a limited liability company in California, whether LLC officers have a similar duty.
Section references below have been updated to reflect California’s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).
I was preparing the operating agreement for a client’s LLC. The client was to be the sole member (equity owner) and manager. (more…)
Which Financial Information Must an LLC Provide to its Members?
Several months ago, I wrote “Which Financial Information Must a Corporation Provide to its Shareholders? “ This post – prompted by a client’s question – discusses the financial information that a California limited liability company must provide to its members. It also explains that such information cannot be waived by any member.
Section references below have been updated to reflect California’s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014). (more…)
Who Can Sign a Contract for an LLC?
Several months ago, I answered the question Who Can Sign Contracts for a Corporation? This post addresses who can sign a contract for a limited liability company (LLC).
Section references below have been updated to reflect California’s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).
The LLC’s Articles of Organization may address who can sign a contract, but this rarely occurs. The subject is more likely to be addressed in the Operating Agreement.
Are LLC Memberships Securities that Must be Registered?
The following are (somewhat edited) an Avvo question and my answer: Q. Is it necessary to file a Form D securities exemption when forming a California limited liability company (LLC) and only issuing an interest to the forming members?
A. The short answer is “no“. The somewhat longer answer is as follows: (more…)
Attention LLC Members: You Have the Right to Be Heard
I have written about annual meetings of corporations’ shareholders (Annual Meetings: The Basics). Although limited liability companies (LLCs) have no obligation to hold, and typically do not hold, annual meetings of their members, meetings of members can take place.
Section references? below have been updated to reflect California?s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).
For California LLCs,? meetings of members are governed by Corporations Code Section 17704.07.
Can an LLC have Members with a Non-ownership Economic Interest?
Today I answered a LinkedIn question about forming an LLC where some members have no ownership of the LLC but receive a share of cash resulting from the business’s profits (their economic interest). The question and answer are reproduced, in somewhat edited form, below. (Since I first wrote this post, LinkedIn has shut down its Q&A feature, so you no longer can find this question there.)
Q: Can you have a Manager Managed LLC where Members have zero ownership interest but receive a share of economic interest? So, the Operating agreement would look like this: 2 Manager Members w/ 50/50% ownership share and 25/25% economic share; 2 Additional Members w/ 0% ownership share and 25/25% economic share. (more…)
Funding Your LLC: Avoiding Mistakes
I recently answered an Avvo question about capital contributions and loans to an LLC. The question and answer are reproduced, in somewhat edited form, below.
Q: I am the sole member of an LLC. What is the best way to make capital contributions? Can I do this in the form of a loan? (more…)
Can I compete with my own LLC?
I recently had a Q-and-A dialogue on Avvo with an LLC member-manager who had a falling out with the other (50%) member and wanted to know whether he could form a separate business that would compete with the existing LLC. An edited version of our exchange appears below.
Q. I have an LLC with a partner. We each own 50% of the business (its an e-commerce store) and we’re member-managers. I’d like to buy him out, but his price is higher than I’m willing to pay. I have been pondering starting another e-commerce store selling kind of the same thing. Question is a) Would an e-commerce business out there competing for new customers constitute a breach of fiduciary duty? b) Would it be possible to rescind title as manager in the LLC which would eliminate that non compete fiduciary duty of a manager?
Can I Form an LLC without a Lawyer?
Recently, several start-up entrepreneurs have asked me whether they can form a limited liability company – LLC – without a lawyer available to help. The following answer reflects practices in California.
Filing Articles of Organization for an LLC without a Lawyer is Easy
The first step, filing Articles of Organization with the Secretary of State, is easy – no lawyer is required. (Unless you want expedited turnaround, in which case a lawyer who has an existing relationship with a commercial filing service in Sacramento is invaluable.)
What is a Managing Member?
The post is about the definition of the term ” managing member “. I am writing this because of a Quora question that I answered a short while ago. Please see What is the difference between a managing member and a member in an LLC?
I have not confirmed whether all of the following background information applies equally to all states. However, I know that it applies to enough states that I will present the following as applying throughout the U.S., generally. (more…)
If You Incorporate in the U.S., You Can’t Remain Anonymous
Recently, two different individuals emailed me about their desire to form and run a legal entity while remaining anonymous.
I had to tell them that they could not achieve their objective. This post explains why that is the case.
Initial Formation is Easy
It is easy for a founder to be anonymous when taking the first step to form a corporation or a limited liability company (LLC). (more…)
What Are My Entity’s Compliance Obligations?
Frequently, the first service I provide to a client is to form a new legal entity (corporation or limited liability company). And frequently, once that entity is formed, the client’s first question is “What are my entity’s compliance obligations?”
This post provides a high-level answer to that question.
(If you form a corporation in California, you can find additional information in the Postincorporation Matters document on the Downloads page – image above.) (more…)
What is an Operating Agreement?
I have used the term “operating agreement” in quite a few of this blog’s posts. However none of those posts explains in detail what a limited liability company (LLC) operating agreement must contain. This post provides that information.
The required contents of an operating agreement depend on the state in which the LLC is formed.
Operating Agreement – California
In California, where I practice, the definition of an operating agreement is set forth in Corporations Code Section 17701.02(s). (more…)
Client Testimonials
Dana Shultz retired from the practice of law in 2020. As a lawyer, Dana dispensed as much business advice as legal advice. Accordingly, although he no longer is practicing law, Dana occasionally provides business consulting services to owners of small businesses and mentoring services to business lawyers.
If you need legal representation, Dana provides referrals to experienced business lawyers.
The remainder of this page is being retained online for archival purposes.
Client testimonials concerning Dana Shultz and his services (a) are based outcomes that result from each client’s factual and legal circumstances and (b) do not constitute a guarantee, warranty, or prediction regarding the outcome of any client’s legal matter. (Just in case you are wondering, Board of Governors Standard (2) adopted pursuant to CA Rule of Professional Conduct 1-400(E) – now governed by Chapter 7 of the Rules of Professional Conduct that took effect on November 1, 2018 – requires that I provide a disclaimer.)
Please see, in addition to these client testimonials, the recommendations on Dana’s LinkedIn profile. (more…)
How to Kill Your Company when That’s the Only Choice
Yesterday I wrote about ways that businesses with two equal owners can avoid management deadlocks (Resolving Small-business Disputes: The 50-50 Deadlock). Today I am writing about dissolution, i.e., termination of a California entity’s existence – the only reasonable outcome if a serious deadlock cannot be resolved.
LLC section references below have been updated to reflect California?s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).
The essence of the dissolution process for a California corporation is as follows: (more…)
Pre-formation Contracts: Avoiding Personal Liability
This post is based on my answer to a LinkedIn question [before the LinkedIn Answers feature was terminated] – the answer would be similar for a contract entered into before a corporation, rather than LLC, is formed:
I signed a lease for office space one day before my LLC became active. Am I personally responsible for the lease? (more…)
Beware Your Alter Ego
This post discusses the alter ego doctrine, particularly as it is applied by courts in California.
The section references below has been updated to reflect California’s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).
Corporations have existed for centuries. One way they promote economic activity is by allowing stockholders to limit their personal liability for corporate debts to the amount of their individual investments in the corporation (“limited personal liability”). (more…)
