Daily Law Group
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LLC not always an option in California

Every new start-up business has many different ways that it can be organized, all of which have advantages and disadvantages. Often, the limited liability corporation (LLC) is the simplest and best way to proceed. In California, however, most professional service providers are specifically prohibited from doing so.

This strange quirk in the California Professional Corporation Act means that business formation can be much more difficult. It's important to understand what options are open to your new business and how it can be best formulated under the law to protect you and your assets.

Why choose an LLC?

For start-ups not offering professional services, an LLC is usually the best way to proceed. They are a distinct legal entity from the partners who make it up, which offers liability protection. This means that:

  • All debts and liabilities incurred by the company cannot be transferred to the partners, protecting their personal assets.
  • The company can scale and grow as it needs to, since it is a distinct entity.
  • The governing partnership can change as partners and investors are added.

For all of these reasons, creation of an LLC is usually the best option for any company that is likely to grow, change, incur debt, or has liabilities.

When it does not apply

In California, any professional service which requires a license under the Business and Professions Code is specifically prohibited from providing those services through an LLC. Exceptions are allowed if the governing law or body which creates the licenses, certifications, or registrations specifically allows it.

This means that most doctors, lawyers, and even private detectives cannot provide their services through an LLC. The liability protection offered by an LLC has to be obtained in other ways, and that can be very tricky. Every start-up needs to be reviewed carefully to see what is best for them.

One noted exception is building contractors, among a few others. In general, if you have to be licensed you cannot form your business as an LLC.

You still have options

In all cases, the formation of a new start-up requires careful attention to the business plan, the financing, and the laws of California. There are many ways which the governing documents can be written to make it easier to achieve your goals and succeed.

One of the best options is not available to many California professions, however. This has to be worked around and a careful evaluation made of how important liability protection and flexibility are in order to decide if a regular corporation is necessary or not. It is essential that an experienced business formation attorney be consulted in order to arrive at the solutions which work best for the business.

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