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TexLaw
TexLaw, Attorney
Category: Legal
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Experience:  Lead trial/International commercial attorney licensed 11 yrs
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For a CA LLC can the revenue stream be shifted from the original

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For a CA LLC can the revenue stream be shifted from the original 2 partner 50/50 to 80/20 without making changes in the LLC itself? For the same CA LLC ( consulting organization) with CA clients is there an issue with 80% of the actual work being provided from out of state?
Hi,

Thank you for your question. I need more information from you to answer.

1. Is there a written operating agreement defining the revenue sharing between the two of you?

2. When you say 80% of the work is "provided" out of state, do you mean that the LLC is doing the work out of state for CA clients, or is there out of state clients asking you to do work out of state?

Thanks for clarifying these issues and I look forward to hearing back from you.

-ZDN
Customer: replied 4 years ago.

This is a CA LLC which states the 50/50 partnership. Question is are we required to amend it to shift to an 80/20 partnership and if so how do we do that? By 80% work provided out of CA I mean that the actual consulting services are being done from out of state for a CA client. Using a KI CA state taxes are paid by both owners in addition to fed taxes

Thank you for your response.

My question is about whether there is an operating agreement, or simply a LLC certificate of formation. However, based on your answer I assume there is only a certificate.

As that is the case, a simple document between the two of you which states the new income split, is signed and dated, will suffice. It also needs to state that the liability for payment of taxes will also change to the 80/20 split, instead of 50/50 (if that is the arrangement). This document does not have to be filed with the state and must simply remain in the company records.

In regard to most of the work taking place outside of California, as long as the income is paid to the Californian LLC, then this is not an issue. However, because the work is outside of CA, you might look into setting up another corporation outside of the state to receive the payment, allowing you to lower your franchise tax burden. This will depend on if the work is going to be worth enough to adequately cover the transaction costs involved in setting up the out of state company.

Please let me know if you need further information or would like to discuss this matter further.

-ZDN
Customer: replied 4 years ago.

There is an operating agreement which was filed with the state of CA. As I understand it we need to file a Statement of Information to update the address of one of the owners who is now out of state. But if we shift the ownership from 50/50 to 80/20 do we need to notify the state and make formal changes in the operating agreement?

That is correct. If one of the owners who is an acting manager of the LLC is moving out of state, then you need to update the SoI (http://www.sos.ca.gov/business/llc/forms/llc-12.pdf).

However, you don't need to make changes to the LLC certificate filed. You only need to have a document signed by both of you which states the change in the way the revenue is paid.

-ZDN
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