California LLC to S Corp Election Invalid?

Technical topics regarding tax preparation.
#1
TrueTax  
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Is an election by a California LLC to covert to S Corporation status on Form 2553 automatically invalid if the LLC has no operating agreement and makes no change to its operating agreement to accommodate the S conversion? I ask because it appears the California Revised Uniform LLC Act contains default provisions that provide for distributions in proportion to capital contributions rather than by ownership percentage. Does it make any difference if the capital contributions are actually made in proportion to the ownership percentages?

The California Corporations Code provides:

17704.04. (a) Any distributions made by a limited liability company before its dissolution and winding up shall be among the members in accordance with the operating agreement. If the operating agreement does not otherwise provide, distributions shall be on the basis of the value, as stated in the required records when the limited liability company decides to make the distribution, of the contributions the limited liability company has received from each member, except to the extent necessary to comply with any transfer effective under Section 17705.02 and any charging order in effect under Section 17705.03.


17707.05. (a) Except as otherwise provided in the articles of organization or the written operating agreement, after determining that all the known debts and liabilities of a limited liability company in the process of winding up, including, without limitation, debts and liabilities to members who are creditors of the limited liability company, have been paid or adequately provided for, the remaining assets shall be distributed among the members according to their respective rights and preferences as follows:
(1) To members in satisfaction of liabilities for distributions pursuant to Sections 17704.04, 17704.05, and 17704.06.
(2) To members of the limited liability company for the return of their contributions.
(3) To members in the proportions in which those members share in distributions.
 

#2
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I don't see a problem with the S election. In a sense the LLC has an operating agreement. It's the CA LLC statutes. Besides, you can enter into the operating agreement now. (You're over-thinking this.)
Steve
 


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