Video Summary:

In this transcript from a video by Andy Gale of Gale & Vallance in Orange County, we explain through practical scenarios on when to create an LLC company in California. Andy outlines the different purposes an LLC can serve—ranging from business operations and asset protection to personal estate planning. Through a trucking business example, he explains how the proper setup of an LLC can shield owners from personal liability and help safeguard valuable assets.

To learn more about when to create an LLC company in California and avoid legal missteps, check out our detailed article on proper timing and compliance for California LLC formation.

Please note: this video does not constitute legal advice, and we strongly encourage you to consult a qualified attorney to evaluate your specific circumstances.

Full Transcript

[Music]

Andy:
Hayami indeed, the incorporation attorney. Thanks for watching.

00:00:12 – Client Question About LLC for Trucking Business

I had a client call yesterday about setting up a limited liability company for his trucking business. He was trying to figure out if he could use an LLC in his business, and you may be wondering the same thing.

00:00:25 – What is a Limited Liability Company?

A limited liability company is a business tool. It’s one legal way of separating a business and its activities and liabilities from the owner.
There are other business tools, of course—for example, corporations and partnerships are business tools as well.
Like a screwdriver and a hammer, each business tool has its specific best use, drawbacks, and limitations. What works in one situation for one owner may not be the best use of the tool for another. So confer with your lawyer when making your choice.

00:00:56 – Three Common Uses of LLCs (Tax Discussed Later)

In general, business owners form a limited liability company for three main use strategies, plus the tax benefits.
We’ll address the tax strategies in another video. All of these uses are possible in one project.

00:01:13 – Use #1: Conducting Business Through an LLC

The first and by far the most common use of LLCs is to conduct business on behalf of their owners.
For example, let’s say my client has a trucking company and he is the sole owner. He could operate the business as a sole proprietor.
Another option would be to run the business through a limited liability company.

Why would he consider that?

As a business owner, you need to consider the risks of running the business.
One risk of the trucking business is vehicle accidents. Let’s assume that one of the trucks driven by his employee was involved in an accident. The driver was found at fault, and the business was owned and operated as a sole proprietorship.
In that situation, my client would personally be responsible for all of the losses suffered by the person hurt in the accident. Not a good result.
If my client had personal assets to lose—like his house, rental properties, bank accounts, and life savings—you get the picture.

If the business was operated through a limited liability company, the company would be responsible for the losses suffered by the person hurt in the accident—not the business owner.

00:02:25 – Asset Risk and Holding Assets in a Separate LLC

One thing to be mindful of is the fact that if the business owns a lot of assets, those could be at risk.
This leads us to the next common use of a limited liability company, which is to hold the assets of an operating business, and thus to protect the assets from third-party claims.

Let’s take our trucking company, for example. My client has been very successful.
He now has 12 trailers, each with a value of $50,000. If there’s an accident, he is at risk of losing all of his trailers if the insurance policy is not sufficient to cover the losses.

What could he do?

With a little bit of pre-planning, he could have formed a second limited liability company to hold all of his trailers.
There would be a contractual lease agreement between the two companies, where the trucking company would lease the use of the trailers from the trailer company.

Now if there’s an accident, the trucking company would be responsible.
It has little or no assets. The trailer company would not be responsible.
My client has just protected $500,000 in business assets.

The owners of every business that owns valuable business assets should consider holding these assets in a separate holding company—an LLC specifically designed for this purpose.

00:03:41 – Use #3: Holding Personal and Family Assets

The third common use of a limited liability company is to hold personal and family assets—both for asset protection and to provide minority discounts and other potentially valuable estate planning discounts.

A common example of this is seen with a family that invests in rental real estate.
The family could title the rental property into their own name. But if there was an issue at the property, then they have at risk both the rental real estate and all of their other personal assets.

What would be the strategy?

If they form an LLC, an option would be to place the rental real property into a limited liability company, which would then own the property.

If the tenant brought suit, the claim would be against the limited liability company—not the owner of the property.

If the estate was large enough, and with some sophisticated estate planning, the owner could gift minority membership interest in the limited liability company to his children at a discounted value to the actual fair market value of the property.

This would allow the owner to pass more property to his heirs—reducing or eliminating estate taxes.

00:04:52 – Final Thoughts

So you can see there’s a range of uses for a limited liability company.
It’s not always the best tool, as some advisors claim, but definitely one for you to consider in your planning.

I’m Andy, the incorporation attorney. Thanks for watching.

[Music]

Conclusion: When to Create an LLC Company in California

Creating an LLC in California can be a smart move when you’re aiming to limit personal liability, protect valuable assets, or optimize family estate planning. Andy Gale’s examples—from trucking businesses to rental property owners—demonstrate that timing and purpose are critical when choosing to form an LLC. Whether you’re a solo operator or a growing enterprise, carefully evaluating your risks and assets with the help of a legal professional is key.
For personalized advice on when to create an LLC company in California, reach out to a qualified attorney who understands the state’s compliance and formation requirements.