One question we commonly receive from small business clients is, "Why does my single-member limited liability company (LLC) need an operating agreement?" To answer this question, we will briefly take a look at the California Revised Uniform Limited Liability Company Act ("RULLCA"), then address possible reasons why an operating agreement may be beneficial.
In a prior post, we noted how foreign real estate investment was likely to increase in 2016 because market for commercial properties was such that opportunities would be difficult to pass up. This, combined with Congress relaxing tax requirements for foreign investors would likely spur additional interest in markets where redevelopment projects are poised to generate a new round of wealth.
California limited liability companies (LLCs) are governed by the California Revised Uniform Limited Liability Company Act (RULLCA). Under RULLCA, LLCs may be managed either by all of the members ("member-managed") or by one or more managers ("manager-managed"). As a default rule under RULLCA, the LLC is managed by all of its members unless the articles of organization and operating agreement provide otherwise. Corp. Code § 17704.07(a). Thus, we must ask "In practice, how do these two management types function?"
In honor of tax season, we wanted to remind our business clients that some legal fees may be deductible for tax purposes. Regardless of your entity type (e.g., corporation, limited liability company or partnership), we encourage all of our business clients to visit a local Certified Public Accountant (CPA) to discuss their unique tax situation and determine if any legal fees are deductible under state and federal tax laws.
In the third and final installment of our three-part blog series on choice of business entity, we will examine how the different legal requirements of the business entity may affect your operations going forward.