How to Form a California LLC with Non-Resident Members: Our Guide

California law does not require that members of an LLC be residents of the state, but there are some considerations to be aware of for your out-of-state business. Learn more here. 

California’s business-friendly climate attracts entrepreneurs and investors from across the country and around the world. A common question we receive at Gallagher Krich is whether individuals residing in different states — or even different countries — can form a California limited liability company together. 

The short answer is yes, but the practical and legal considerations are significant, and getting them wrong can be costly.

California Places No Residency Requirement on LLC Members

Unlike some professional licensing contexts, California law does not require that members of an LLC be residents of the state. The California Revised Uniform Limited Liability Company Act (RULLCA), codified at Corporations Code sections 17701.01 through 17713.13, governs the formation and operation of all California LLCs. RULLCA imposes no citizenship or residency requirement on members. (Corp. Code, § 17704.01.) Any individual, domestic or foreign corporation, other LLC, partnership, trust, or estate may become a member of a California LLC. (Corp. Code, § 17704.01, subd. (c).) An international corporation, for example, may serve as the sole member of a California LLC or join with other persons or entities as a co-member.

There is, however, one California-specific requirement that trips up out-of-state organizers: every California LLC must designate and continuously maintain an agent for service of process who has a California street address. (Corp. Code, § 17701.13, subd. (a).) A P.O. box will not suffice. If no member resides in California, the LLC must appoint a registered agent service or another individual who does.

The Operating Agreement Is Critical for Multi-Jurisdictional Ventures

When LLC members are scattered across multiple states or countries, the operating agreement becomes the single most important document governing the venture. RULLCA provides that the operating agreement governs the relations among the members, between the members and the LLC, and the activities and affairs of the LLC. (Corp. Code, § 17701.10, subd. (a).) If the operating agreement is silent on a given issue, RULLCA’s default rules fill the gap, and those defaults may not reflect the members’ actual intent.

Several provisions require particular attention in the multi-jurisdictional context.

Choice of Law and Forum Selection. California law permits LLC members, through a written operating agreement, to consent to the nonexclusive jurisdiction of the courts of a specified jurisdiction and the courts of California, or to the exclusive jurisdiction of California courts. (Corp. Code, § 17701.17, subd. (a).) A clear choice-of-law provision designating California law as governing the operating agreement and a forum selection clause specifying California (or another agreed-upon jurisdiction) for disputes can prevent expensive threshold litigation over where and under what law a dispute will be resolved.

Management Structure. RULLCA distinguishes between member-managed and manager-managed LLCs. (Corp. Code, § 17704.07.) When members are in different time zones or countries, the allocation of day-to-day management authority to a designated manager, or a management committee, with clearly defined decision-making authority, can streamline operations and reduce deadlock risk. Certain extraordinary actions, including the sale of all or substantially all of the LLC’s assets, require the consent of all members unless the operating agreement provides otherwise. (Corp. Code, § 17704.07, subd. (b)(3)(E).)

Fiduciary Duties. RULLCA codifies the fiduciary duties of loyalty, care, and the obligation of good faith and fair dealing owed by members (in a member-managed LLC) and managers (in a manager-managed LLC) to the LLC and to one another. (Corp. Code, § 17704.09.) The operating agreement may modify these duties, but it may not eliminate the duty of loyalty entirely, unreasonably reduce the duty of care, or eliminate the obligation of good faith and fair dealing. (Corp. Code, § 17701.10, subd. (c)(4).) In cross-border ventures where members may have divergent expectations shaped by different legal cultures, spelling out the scope and limitations of fiduciary duties in the operating agreement is prudent.

Dispute Resolution. An arbitration clause or a structured mediation-first provision can be invaluable in a multi-state or international LLC. Litigation across jurisdictional lines is expensive and unpredictable. Including a binding arbitration provision in the operating agreement, with a specified seat (such as San Diego, California) and a designated set of rules (such as JAMS or AAA), provides a private, efficient mechanism for resolving disputes.

Personal Jurisdiction Considerations

When a dispute arises among members of a multi-state LLC, the question of personal jurisdiction over out-of-state members can become a threshold issue. Forming or joining a California LLC does not automatically subject an out-of-state member to the general jurisdiction of California courts for all purposes. The consent-to-jurisdiction provision in Corporations Code section 17701.17 applies specifically to disputes arising under the operating agreement or RULLCA. For other claims, a California court must determine whether the nonresident member has sufficient minimum contacts with California to satisfy due process. (See Impossible Foods, Inc. v. Impossible X, LLC (9th Cir. 2023) 80 F.4th 1079 [holding that an LLC’s prior California business activities supported specific personal jurisdiction even after the LLC relocated to Texas].)

Including a broadly drafted consent-to-jurisdiction clause in the operating agreement, covering all disputes “arising out of or relating to” the LLC, the operating agreement, or any member’s relationship with the LLC, mitigates this risk.

Foreign LLCs Registered in California

A related but distinct scenario involves an LLC formed in another state (such as Delaware or Nevada) that registers to do business in California.

Under RULLCA, the law of the state under which a foreign LLC is formed governs the organization, internal affairs, and authority of its members and managers, as well as member and manager liability. (Corp. Code, § 17708.01.) However, the scope of what constitutes an “internal affair” versus a matter governed by California law remains an open question under the statute, and practitioners should not assume that forming in Delaware entirely insulates the LLC from RULLCA’s requirements when the LLC operates in California.

Practical Takeaways for Multi-State and International LLCs

For entrepreneurs and business owners considering forming a California LLC with members in other states or countries, a few practical steps are essential. First, retain experienced California counsel at the outset to draft a comprehensive operating agreement tailored to the specific needs and risks of a multi-jurisdictional membership. 

Second, address tax withholding and reporting obligations proactively, ideally in coordination with a CPA experienced in multi-state and international taxation. Third, include clear choice-of-law, forum selection, and dispute resolution provisions in the operating agreement to minimize the risk and cost of jurisdictional disputes. Finally, ensure compliance with California’s agent-for-service-of-process requirement and all annual filing and tax obligations from day one.

At Gallagher Krich, APC, we regularly advise clients on the formation and governance of California LLCs with members in multiple states and countries. If you are considering forming a California LLC, or if you have questions about an existing multi-member LLC, we invite you to contact us at (858) 926-5797 or through our contact page for a free initial consultation.

Thomas F. Gallagher is the CEO and Managing Partner of Gallagher Krich, APC, a San Diego business law firm. He is admitted to practice in California. This article is provided for informational purposes only and does not constitute legal advice. No attorney-client relationship is created by reading this article.  

Gallagher Krich, APC 3033 Fifth Avenue, Suite 222, San Diego, CA 92103 

Phone: (858) 926-5797 web: tomgallagherlaw.com