Please complete the following questionnaire which will provide the initial information necessary to assist in drafting the Articles of Organization and Operating Agreement for the formation of a California LLC.
1. Please provide 3 choices for names of the LLC listed in the order of preference.
(All California LLCs must contain either LLC, L.L.C., Limited Liability Company in their name and the words Limited and Company may be abbreviated to Ltd. And Co. The LLC name may contain the name of one or more of the members but may not include the words Bank, Insurance, Insurance Company, Trust, Trustee, Incorporated, Inc. or Corp.)
2. Will the LLC be member-managed or manager-managed?___________________________________
(Under California law an LLC can be managed either by all the members or by one or more managers. The managers in a manager-managed LLC may be either members or nonmembers. California Law also allows for a single member LLC. In a member managed LLC, each member is an agent of the LLC and can bind the LLC while in a manager managed LLC, the manager is the agent of the LLC and no member is an agent of the LLC by virtue of being a member. Each member of a member managed LLC has the fiduciary duties of a manager and a manager in a manager-managed LLC has the fiduciary duty of a manager to the members is like that of a partner to a partnership.)
3. Please provide the name, address and marital status of each proposed member, manager, or officer of
the LLC that is being formed. ____________________________________________________________
4. What will be the street address of the LLCs principal office in California? _________________________
5. What will be the time term of the LLC ? ___________________
6. What will be the general type of business of the LLC? _______________________________________
7. What will be the members’ respective ownership interests in the LLC?___________________________
8. What will be the initial capital contributions? _______________________________________________
(The initial capital has ramifications not only for the operations of the LLC but for tax planning as well and good advice from an experienced CPA is always a good idea before making this determination.)
9. Will additional capital contributions be allowed or required? Why and how much? _____________________
(This can have ramifications not only due to tax issues but for relative investment and power issues within the structure. This decision requires careful consideration not only of the business questions but of the power structure within the company.)
10. Will interest be paid on the Capital Contributions or on the balance of a Member’s Capital Account? _______________________________________________________________________________________________
11. What will be the manner and priority of LLC distributions? ______________________________________________
(The operating agreement may provide for any agreed allocation of profits and losses among the members as long as the LLC complies with the IRC regulations regarding capital account maintenance rules and the rules requiring specified adjustments when book values are used. Unless the Operating Agreement provides otherwise, distributions that are a return of capital will be made in proportion to the capital contributions made by each member, and distributions that are not a return of capital will be made in proportion to the members allocated shares of profit. The choice of allocation provisions should be discussed with your accountant with special attention to questions 12 – 15 below)
12. Will there be priority or unequal division in the allocation of profits and losses? Describe?
(Absent provisions to the contrary, profits are divided up according to ownership interests but that is not required if the Operating Agreement provides otherwise.)
13. Will there be a disproportionate allocation of profits and losses based on book values of assets contributed? How?
14. Will there be special allocation provisions in the Operating Agreement for such things as Company Minimum Gain
Chargeback, Member Nonrecourse Debt Minimum and Qualified Income Offset? _________________________
(Again, questions to pose for the accountant of the LLC or its Members.)
15. What will be the compensation to the manager(s) if any? _________________________________________
16. Will there be more than one class of members? ________________________________________________
17. Will there be a right to reimbursement of expenses incurred in connection with LLCs business? _____________
18. Will the agreement provide any obligation of members or manager to devote all their business time to LLC?
19. What right, if any, will members or managers have to engage in any business that competes or conflicts with
LLCs business? ______________
20. What will be the tax year of the LLC ?______________________________
21. What will be the method of accounting? ____________________________
22. What will be the buy-out rights?______________________________________________________
(Remember to consider what you want to happen if the following events occur: Someone wants to sell; Someone receives an offer to buy? Someone moves out of State? Someone dies? Someone becomes disabled? A couple that owns an interest file for divorce? All these things can happen and a good LLC Agreement will provide details in how those events are to be handled.)
23. What will be the appointment and removal provisions if any for managers? ____________________
24. What will be the terms for admitting additional members? _________________________________
25. What will be the events of dissolution? ________________________________________________
26. Will the LLC have officers? _____________________________________________________________________
27. Who is the accountant to be for the LLC and will it be the same as for the individual members? ________________
28. How are disputes within the LLC to be resolved? Mediation? Arbitration?__________________________________
(See the articles on our website on American Litigation; Arbitration of Business Disputes. www.stimmel-law.com articles page.)
29. Will the LLC engage in business outside the State? Internationally?
30. Will sales tax be collected for the operations of the LLC? Will it have to qualify to do business in another State? ____________________________________________________________
31. Contact information for all Members and Managers: ______________________________________
32. Other issues: ___________________________________________________________________
(Take this fully filled in form to your attorney and or CPA and it should save significant time in obtaining the background information necessary to form your LLC. Most LLCs can be legally created in less than a week: the delay is usually among the Members negotiating the answers to the various questions above. Be sure to also consider the alternative limited liability entities such as Sub Chapter S corporations; Chapter C corporations; Limited Partnerships. People from outside the United States have an alternative group of limited liability entities to consider as well and legal advice should be sought if business is to be concentrated outside of the United States.)