The LLC is a relatively new form of business entity that combines the tax benefits of a “pass through” entity (like a partnership) with the limited liability protections of a corporation. LLCs are generally taxed once and have flexibility to adopt various capital structures.
You can form an LLC by filing the articles of organization with the secretary of state of your choice. Make sure you appoint a registered agent for your LLC. This is the person who will receive notice of any legal action against you. In California, your lawyer will file Form LLC-1.
LLCs can be managed by its members or by a manager. In an member-managed LLC, all members have management authority. If you are forming an LLC but want to vest management in a professional manager, you can do so. The manager doesn’t have to be a member of the LLC. Be careful who manages the LLC, because a manager has the power to enter into contracts and bind all members of the LLC.
You will need an operating agreement. This is the document that spells out the management and operational functions of the LLC. You can, for example, decide to split the management duties based on the proportional ownership interests of each member. You can also identify the manager of the LLC, if you decide to form a manager-managed LLC.
Going for VC funding?
If you are planning on going after VC funding, beware: many VCs would rather not invest in pass-through entities, like an LLC.
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