California startups, entrepreneurs, and growing businesses face a variety of business, regulatory, federal and state employment law, and human resource issues.   Rather than hiring an external Personnel Services Organization company or a full-time human resources individual, our clients rely on Western Law Center to provide a one-stop-shop for every employment-related filing, posting, reporting, offer letters and employment contracts, hiring considerations, associated workplace policies and handbooks, and related guidance.  Western Law Center guides clients on correctly categorizing a worker as an employee or independent contractor, or classifying an employee as Exempt or Non-Exempt.  We also assist our clients with checklists to onboard their first or one-hundredth employee.  

Please see below some of our clients’ most common questions regarding operating as an employer in California.  For tailored responses and plans, please contact us via our Contact Us Form or email at [email protected]. 

After forming the entity, whether it is a corporation or a limited liability company (LLC), a startup founder needs to decide whether to hire employees or contractors.  Our clients then reach out to us to discuss the difference between the two types of workers, what requirements there are to onboard each type, and whether the employee is exempt or non-exempt.  If it is an employment relationship, employers must provide new employees with information about California’s many laws including sick pay and disability.   

At Western Law Center, we are often asked what entity the client should form.  The most common two types of corporate legal entities in California are Corporations and Limited Liability Companies.  Please see below an overview of Limited Liability Companies (“LLCs”), and reach out if you have any questions by completing our Contact Us form.

Limited Liability Companies

General LLCs are authorized under the California Revised Uniform Limited Liability Company Act.  An LLC may have one or more members and see Members.  In addition, an LLC formed in another state can register and transact business in California as a foreign entity.  Contact us with any specific questions.

California prohibits professional LLCs.  A California LLC cannot be formed to render professional services under RULLCA (services that require a professional state license, registration, or certification under the Business and Professions Code). However, certain LLCs, domestic or foreign, may provide specified professional services subject to certain authorization, licensure, registration, and other requirements set forth in the applicable governing statute, for example, the Business and Professions Code.

What is required to form and organize an LLC?

Articles of Organization

Under the California Revised Uniform Limited Liability Company Act (RULLCA), one or more organizers must sign and deliver articles of organization to the California Secretary of State (SOS) for filing that state:

A statement that the LLC’s purpose is to engage in any lawful act or activity for which LLCs may be organized under RULLCA.

The LLC’s name, which must comply with RULLCA’s requirements.

The street address of the LLC’s initial designated office.

The mailing address of the LLC, if different from the street address of the LLC’s initial designated office.

The name and street address of the LLC’s initial agent for service of process. If a corporate agent is designated, only include the name of the agent.

If the LLC will be manager-managed, a statement to that effect.

If the LLC will be managed by only one manager, a statement to that effect.

Operating Agreement

A California LLC, regardless of the number of members, is not required to have a written operating agreement.  However, it is highly recommended and needed in order to operate the LLC.  An operating agreement may be:

Oral.

In a record.

Implied.

Any combination of the above.

However, a written operating agreement helps avoid conflict by clearly setting out any agreements and responsibilities of the members. Having a written operating agreement can also avoid the application of undesired statutory default provisions that otherwise apply if the matter is not addressed in the agreement.  An operating agreement can contain any provision not inconsistent with the law or the articles of organization relating to:

Relations among the members as members and between the members and the LLC.

The rights and duties of a person in the capacity of manager. A manager:

is any person who is responsible (alone or with others) under the operating agreement for performing the LLC’s management functions; and

may be an individual or an entity.

The LLC’s activities and the conduct of those activities. The means and conditions for amending the operating agreement.

Naming a California LLC

The name of a California LLC must:

-Contain the words limited liability company or the abbreviation LLC or L.L.C. The words limited and company may be abbreviated to Ltd. and Co.

-Not include the terms bank, trust, trustee, incorporated, inc., corporation, corp., insurer, or insurance company or any other words suggesting the LLC is in the business of issuing insurance policies or assuming insurance risks.

-Not be likely to mislead the public, as determined by the California Secretary of State (SOS).

-Be distinguishable in the SOS’s records from the name of any California LLC or foreign LLC authorized to transact business in California and any name reserved under RULLCA.

Statement of Information

An LLC must file a statement of information with the SOS within 90 days after the filing of its original articles of organization and biennially thereafter during a specific six-month filing period based on the original registration date. The six-month filing period consists of the month during which the original articles of organization were filed and the immediately preceding five months. For example, if registering on June 15, 2021, the initial statement of information is due September 13, 2021. The biennial statement of information is due between January 1 and June 30, 2023, and every other year after that. If there has been no change in the information contained in the previous complete statement of information, an LLC may instead file a Form LLC12-NC Statement of No Change.

The statement of information can be filed online

We use a specific and reliable third party in Delaware to file the LLC Certificate of Formation, and keep track of each filing. They will also be your “Registered Agent” (which is required in Delaware and serve as a service provider to receive any legal documents on your behalf and forward it to you).  Their fee is $50 annually and first year is already paid by us as part of the package fee.   You will receive a notice to pay the renewal the following year.

When the client is ready for any other investors or contributors to the company, the client notifies us and we add them to the LLC Agreement (Operating Agreement) using a Joinder Agreement.  If applicable, the Spousal Consent is included as well.

Statement of Information.  The Statement of Information, which has been filed with the California Secretary of State, is included for your records.  We pay the fees for the first year.  A new Statement of Information is required to be filed every other year or whenever there is a change in the information contained.  The client should receive email reminders from the California Secretary of State.

Tax Voucher – Form FTB 3522.  We recommend that the client provide the FTB Form 3522 to its accountant or CPA and follow the instructions attached to the Tax Voucher.

When we provide the client with the LLC Agreement (or aka Operating Agreement), the client reviews it, and if it meets its approval, the client signs and returns a copy of the executed version to our office for safekeeping in the Client file.  The client is also welcome to make changes to the Operating Agreement at any time.

We can also submit an application for an Employer Identification Number.  Alternatively, the client can choose to have its accountant or CPA obtain the LLC’s Employer/Tax ID Number (“EIN”) online directly from the IRS.  We are available for counsel each step of the way.

Below, we offer an example of the types of analysis that must be reviewed when onboarding employees:

(i) Disability insurance rights and benefits due to:

• sickness;
• injury; or 
• pregnancy 

(ii) Paid family leave program for the employees:

• own sickness, injury, or pregnancy;
• need to care for any sick or injured family member; or
• need to bond with a minor child within the first year of the child’s birth, adoption, or foster care placement (for more information.

Employers with one or more employees must distribute to their employees the Department of Fair Employment and Housing (“DFEH”) fact sheet on sexual harassment or equivalent information in a manner that ensures distribution to each employee.  Employers must also provide each employee with a written notice of pay and other information, including sick leave, at the time of hire (Cal. Lab. Code § 2810.5).  We provide the notice as a policy.

Employees in California whose compensation includes commission must be provided with a written commission agreement stating the method for computing and paying the commission.  Many of our clients receive commission agreement that they can alter for each new employee.  Every California employer must provide a workers’ compensation brochure containing the following information:

• The name of the employer’s current workers’ compensation insurance carrier or whether the employer is self-insured, and who is responsible for claims adjustment.
• How to get emergency medical treatment, if needed.

 The types of events, injuries, and illnesses covered by workers’ compensation.

• The injured employee’s right to receive medical care.
• Employees’ rights to select and change the treating physician.
• Employees’ rights to receive temporary disability indemnity, permanent disability indemnity, supplemental job displacement benefits, and death benefits, as appropriate.
• To whom injuries should be reported.
• Time limits for notifying the employer of an occupational injury.
• Employees’ protections against discrimination.
• Internet website and contact information concerning the workers’ compensation claims process, including the location and telephone number of the nearest information and assistance officer.
• How to obtain appropriate medical care for a job injury.
• The role and function of the primary treating physician.
• A description about Medical Provider Networks (MPNs), including:
• what an MPN is;
• that the employer may be using an MPN;
• the pre-designation exemption from the MPN;
• when an employee must begin to use a physician from the MPN; and
• how to request information about using an MPN.

Employers must distribute pamphlets created by the Employment Development Department informing workers of their disability insurance and paid family leave insurance rights and benefits (Cal. Unemp. Ins. Code § 2613(b), (c)). The pamphlet contains information such as:

• How to claim benefits.
• How benefits are paid.
• How an employee’s benefit rate is determined.
• Eligibility for benefits.
• Employee’s rights and obligations.
• Contact information for Disability Insurance Claim Management offices and Paid Family Leave insurance offices throughout the state.

Each employer must distribute the sexual harassment information sheet provided by the Department of Fair Employment and Housing (DFEH) unless the employer provides equivalent information that contains at least the following components:

• The illegality of sexual harassment.
• The definition of sexual harassment under applicable state and federal law.
• A description of sexual harassment, including examples.
• The employer’s internal complaint process available to the employee.
• The legal remedies and complaint process available through the DFEH.
• Directions on how to contact the DFEH. • Employees’ protection against retaliation for:
• opposing any practices prohibited by the law’s anti-discrimination and anti-harassment provisions;
• filing a complaint with the DFEH; and
• participating in an investigation, proceeding, or hearing conducted by the DFEH. • A link or website address for the sexual harassment online training courses developed under Cal. Gov’t Code § 12950.1.

Under Notice of Pay Information Cal. Lab. Code § 2810.5, California employers must provide employees with a written notice that includes the following information:

• The pay rate and the basis, whether hourly, salary, piece, commission, or otherwise, including any overtime rate.
• Allowances, if any, claimed as part of the minimum wage, including meals or lodging.
• The regular payday.
• The employer’s name, including any “doing business as” names used by the employer.
• The physical address of the employer’s main office or principal place of business and a mailing address, if different.
• The employer’s telephone number.
• The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.  That an employee:
• may accrue and use sick leave;
• has a right to request and use accrued paid sick leave;
• may not be terminated or retaliated against for using or requesting the use of accrued paid sick leave; and
• has the right to file a complaint against an employer who retaliates. • Any other information as determined by the Division of Labor Standards Enforcement (DLSE).