Formation & Operation of an LLC in California – continued.
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Allocation of Profits & Losses

Allocation of profits is significantly more flexible with an LLC versus a Corporation. The members to a California LLC have the ability to allocate profits and losses in any manner they choose. If the members do not allocate distributions in their operating agreement, California law provides that distributions will be shared by the members in proportion to their actual contributions to the limited liability company and, after all contributions have been returned, distributions will be shared equally by the members.

Extent of Individual Liability

Any member, manager, employee, officer, or agent of a limited liability company is not liable, as an individual solely by reason of being a member, manager, employee, officer, or agent, for the debts of the limited liability company. This is different from the liability of general partners in a general partnership or of the general partners in a limited partnership, who have joint and several liability for partnership obligations. It is also different from the liability of limited partners in a limited partnership. In a limited partnership, each limited partner’s liability for partnership debts is generally limited to the contribution that the limited partner has made or agreed to make to the partnership. However, if a limited partner participates in the control of the partnership’s business, the limited partner will also become liable for all partnership debts and obligations. Members to a LLC can avoid liability for business debt when they file Articles of Organization, enter an Operating Agreement and follow California rules and regulations on running a LLC.

Transferability of Ownership Interests

A member cannot sell or assign his ownership interest in a California LLC to another person and make that person a member without the consent of all other members, unless all of the members have previously agreed in their operating agreement that such consent is not necessary. As noted above, compliance with state and federal securities laws may be required in connection with any such transfer of rights. If a member desires merely to sell or assign the member’s economic rights to receive distributions, without giving the buyer or assignee any management or voting rights as a member, California law permits the transfer of these economic rights, unless the transfer is prohibited by the LLC operating agreement. CONTINUITY OF LIMITED LIABILITY COMPANY EXISTENCE >>> Printable Version