Limited Liability Companies
A limited liability company combines traditional corporate and partnership characteristics. Members of a limited liability company are given the same advantage of limited liability as shareholders of a corporation, while generally being taxable at the member level, like a partner in a partnership.
A limited liability company may be classified as an association taxable as either a C corporation or an S corporation. California and federal laws treat these limited liability companies as corporations subject to all corporation tax laws. Limited liability companies classified as C corporations must file Form 100, California Corporation Franchise or Income Tax Return. If they are classified as an S corporation they must file Form 100S, California S Corporation Franchise or Income Tax Return.
Important: The federal classification of the entity is binding for California and a separate state election is not allowed.
Registering to Do Business in California
All domestic and foreign limited liability companies doing business in California are required to register with the California Secretary of State. Domestic limited liability companies that do not register with the California Secretary of State are not considered to be limited liability companies.
Limited liability companies that do business in California and other states must apportion their income using Schedule R, Apportionment and Allocation of Income.
Example: In 2000, a Nevada limited liability company opens an office in California. Since the limited liability company is doing business in both Nevada and California, it must file a California Form 568, Limited Liability Company Return of Income and use Schedule R to apportion income between the two states.
What form do I file for my limited liability company?
Limited liability companies file Form 568, Limited Liability Company Return of Income.
Reduced Filing Program
To qualify for the reduced filing program, a limited liability company must:
- Be registered in California.
- Not be doing business in California.
- Not have any California source income.
Under this program, a limited liability company’s filing requirement is satisfied by:
- Completing a Form 568 with all supplemental schedules.
- Completing and attaching California Schedule K-1 (568) only for members with California addresses.
- Writing ”SB 1106 Filing” in red on top of the front page of Form 568.
- Entering the total number of partners (including partners with California addresses) in Question J, Side 2, of Form 568.
When is Form 568 due?
Form 568 is due on the 15th day of the fourth month after the close of the year. If the due date falls on a Saturday, Sunday, or legal holiday, the filing date is the next business day.
Short accounting period (15 days or less)
New limited liability partnerships that have an initial income year of 15 days or less and do no business during that time are not required to file a return or pay the limited liability partnership annual tax for that period. To qualify for this treatment, the limited liability partnership must have registered with the California Secretary of State on or after the following dates:
Month of Registration and Taxable Year Ending
Automatic Six-Month Extension to File
California grants an automatic six-month extension beyond the return due date to file Form 568. A return filed after the extended due date is treated as delinquent, with penalties computed from the original return due date.
Important: An extension to file is not an extension to pay. Tax is due on or before the original due date regardless of an extension to file.
To avoid penalties, the limited liability company must pay the annual tax by the original return due date. The limited liability company should submit Form 3537, Payment Voucher for Automatic Extension for Limited Liability Company with their payment.
What is the limited liability company annual tax?
The limited liability company annual tax is $800. To be subject to the tax, the limited liability company must, for a least one day during the year, be:
- Doing business in California, and/or
- Registered with the California Secretary of State.
Doing Business is defined as actively engaging in any transaction for the purpose of financial gain or profit.
The limited liability company fee must be paid by the original return due date of the partnership return.
When is the annual tax due?
The annual tax is due on the 15th day of the fourth month after the beginning of the tax year. Use Form 3522, Limited Liability Company Tax Voucher to pay the annual tax. We will assess a late payment penalty if the limited liability company makes the payment after the original due date.
Important: Do not pay the annual tax with Form 568.
Registration after the year begins (foreign limited liability companies only):
If an existing foreign limited liability company registers or begins doing business in California after the 15th day of the fourth month of its year, the annual tax is due immediately upon registration or beginning to do business here.
Is the annual tax deductible?
No, the annual tax is not deductible.
What is the limited liability company fee?
Limited liability companies are subject to a fee under the same circumstances that they become subject to the annual tax.
The fee is based on the limited liability company s annual total income from worldwide sources. Total income is not apportioned or allocated based on the operations in California.
Total Income: Total income is defined as gross income plus cost of goods. The fee schedule for the taxable years:
Note: For taxable years beginning on or after January 1, 2001, the total income from tiered entities will only be included once in the calculation of the LLC fees. Total income will no longer include any income, gain, or distribution, that is subject to payment of the fee, and received by an LLC that was allocated or attributable to that LLC simply because it is a member of another LLC.
Is the limited liability company fee deductible?
Generally, the limited liability fee is considered a deductible ordinary and necessary business expense.
Does California allow single member limited liability companies?
Yes, effective January 1, 2000, California allows domestic single member limited liability companies. Prior to January 1, 2000, California only recognized foreign single member limited liability companies.
Disregarded single member limited liability companies still must file Form 568, although they only need to complete a small portion of it. Similar to federal treatment – all income and loss, deductions and credits are reported on the parent’s limited liability company return.
Important: Disregarded single member limited liability companies are still subject to the annual tax and the fee.
What is an investment club?
Certain partnerships are allowed to make an election to be excluded from the partnership provisions. These partnerships are often referred to as investment clubs because, in order to qualify, they generally have investment activities. They cannot be operating a trade or business.
Limited liability company annual tax: Limited liability companies may qualify and make an election under the investment club provisions. However, such an election does not exempt them from the limited liability company annual tax.
Limited liability companies must still file California returns for tax years after making the election. However, they only need to complete the entity information and pay any amounts due.
General Limited Liability Company Information
Doing Business in and Outside of California