Forming and Operating California Limited Liability Companies

Courtesy of CEB, we are bringing you selected legal developments in areas of California business law that are covered by CEB’s publications. This month’s feature is a preview of the December 2025 update of Forming and Operating California Limited Liability Companies. References are to the book’s section numbers.

The notable developments since the last update include the adoption by FinCEN of an interim final rule effectively withdrawing the reporting requirements of the Corporate Transparency Act, and the passage of the One Big Beautiful Bill Act, which extended and made permanent many of the provisions of the Tax Cuts and Jobs Act, which were scheduled to sunset at the end of the 2025.

The Corporate Transparency Act (CTA) (Pub L 116–283, 134 Stat 4604), passed on January 1, 2024, would have required significant federal reporting and disclosure obligations for certain corporations and entities taxed as partnerships, as well as their shareholders and partners or members. On March 25, 2025, the Financial Crimes Enforcement Network (FinCEN) adopted an interim final rule effectively withdrawing the CTA reporting requirement. 31 CFR §1010.380. See §§3.10 and 7A.1.

The Certificate of Limited Partnership (former Secretary of State Form LP‑1) can be submitted through the Secretary of State’s bizfile Online portal, accessible at https://bizfileonline.sos.ca.gov/. This online method is the only service option. See §3.12.

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA) (HR 1) (Pub L 119–21, 139 Stat 72). The OBBBA extended and made permanent many of the provisions of the Tax Cuts and Jobs Act (TCJA), which were scheduled to sunset at the end of the 2025. In addition, the OBBBA accelerated the phase out of certain clean energy credits provided in the Inflation Reduction Act. In general, the OBBBA creates more generous tax benefits for corporations, entities taxed as partnerships, and their owners. See §§3.14 and 4.32A.

Gain realized on a noncorporate shareholder’s disposition of corporate stock held for more than a year (i.e., long‑term capital gain) is generally taxed at the rate of 15 percent, or 20 percent for single filers with incomes above $533,400 and married filers with incomes above $600,050 in 2025. IRC §1(h). See §3.20.

For tax year 2025, individual filers can only deduct $313,000 of business losses against nonbusiness income ($626,000 for joint filers). IRC §461(l). The limitation is indexed to inflation, and losses in excess of the thresholds are carried forward under the TCJA NOL rules. The OBBBA made the limitation on noncorporate taxpayer losses permanent. See §3.21.

Senate Bill 132 (Stats 2025, ch 17) extended the tax elections for PTEs for taxable years beginning on or after January 1, 2026, and before January 1, 2031. See §§3.57A and 5.6B.

To be taxed as a corporation, a business entity files IRS Form 8832 (Entity Classification Election) with the IRS within the first 75 days of its taxable year if the election is to have retroactive effect. Treas Reg §301.7701–3(c)(1)(iii). This form can be found at https://www.irs.gov/pub/irs-pdf/f8832.pdf. See §4.5.

Although the California Revised Uniform Limited Liability Company Act (RULLCA) does not impose fiduciary duties on members of manager-managed LLCs, an operating agreement can impose fiduciary duties on members of manager-managed LLCs. See Samuelien v Life Generations Healthcare, LLC (2024) 104 CA5th 331. See §6.40.

Most of the California Secretary of State LLC forms may only be filed online. The California Secretary of State has instituted a service called bizfile Online (see bizfileonline.sos.ca.gov) for the filing of most forms. However, some forms may still be filed by mail or in person. See §7.13.

The Treasury’s Financial Crimes Enforcement Network (FinCEN) issued the first set of final regulations on September 30, 2022, codified in 31 CFR Part 1010. See 87 Fed Reg 59498 (Sept. 30, 2022). These regulations established reporting deadlines and clarified what entities were to file reports and what information they were to report. See §7A.1.

Under federal law, general partnerships are generally not deemed to be a security interest because general partners have the right to exercise meaningful control over, and participate in, management of the entity. See §12.48.