California is one of the best states to set up an LLC. Whether you’re starting a company or incorporating an existing one, you must understand the state regulations for forming an LLC. If you know what you’re doing, forming an LLC in California is simple. Here, in this guide, we will walk you through the process of how to start an LLC in California.
A California LLC (limited liability company) is a business structure with a variable leadership structure, liability protection, and the potential to be taxed as a pass-through entity or a corporation. You must file a form called Articles of Organization with the California Secretary of State and spend a $70 filing fee to officially incorporate your LLC in California.
If you want more information on how to start an LLC in any state, read our guide on how to form an LLC.
TABLE OF CONTENTS
If you really want to file an LLC online in California, you can do so either online, in person, by mail, or by fax. The Articles of Organization is the legal document that sets your limited liability business in California.
Making the decision to establish your business structure is a crucial step in securing your financial future. Many businesses opt to incorporate an LLC in California to receive financial and legal protection without the burdens of becoming a California corporate. Allow us to handle the tough lifting for you if you’re looking to form an LLC in California.
We’re here to assist you with anything from naming your business to ensuring that your paperwork is done correctly to acting as your registered agent. Let’s get started with how to start an LLC in California!
Before we start, here are the top picks for LLC formation services in California:
👉 Top Rated LLC Formation Services In 2022
👉 Best Incorporation Services For Small Business
👉 Best LegalZoom Competitors & Alternatives
👉 Stripe Atlas Alternatives For Your Startup
👉 ZenBusiness Vs Incfile: Which Is Best For You?
👉 Stripe Atlas Vs Clerky Vs Gust Vs ZenBusiness: Who Wins?
Why Start An LLC In California?
There are several benefits to forming a California LLC, or Limited Liability Company in California. The California LLC model restricts your liability to the money you invested in the company. This implies that any commercial responsibility will not affect your personal assets. A California LLC with a single owner is considered as a sole proprietorship for tax purposes, whereas an LLC with several owners is treated as a partnership.
Also, Read Our Guide On How To Choose Between Sole Proprietorship Vs LLC?
A California limited liability company (LLC) is the easiest and quickest way to form a business for most people. An LLC is a good option for entrepreneurs and small to medium-sized companies since it provides all of the benefits and protections of a huge company while having fewer laws and regulations.
Lastly, in California, the members’ part of the LLC’s net profit is not regarded as personal income and hence is not subject to self-employment taxation. The generated revenue is reflected by the LLC’s assured distributions to shareholders. You can choose whether your LLC is treated as a “pass-through” organization or as a corporate each year, based on which is more profitable.
Advantages Of Forming An LLC In California
- Personal assets are protected from business obligations and responsibilities
- Filing, management, compliance, regulation, and administration are all simple
- Provides simple tax filing and significant tax treatment benefits
- Allows multi-tiered ownership which allows for tex benefits and improved liability protection
- The cost of LLC formation in California is much lesser than in the District of Columbia, Connecticut, and Delaware
- California LLCs can raise funds easily through sales of stocks
Steps For How To Start An LLC In California
For small businesses, forming an LLC might be daunting, but it provides liability coverage and tax advantages, among other things. You need to follow these eight simple steps to get your California LLC up and going if you’ve chosen an LLC that is the perfect business structure for you.
Here is the step by step guide to get you started today:
1. Choose A Name For Your California LLC
In the first step, you need to choose a name and include it in your articles of an organization before you register your LLC. You must come up with an innovative name for your LLC. It can’t be the same as or too similar to a name already registered with the California Secretary of State, and it can’t be confusing to the audience.
Moreover, you may check for name availability in the California Secretary of State’s business name database. Plus, the name may be reserved for up to 60 days by filing a name reservation request form. California’s naming regulations must be followed. The following are the important factors that you must follow:
- The terms Limited Liability Company, LLC, or L.L.C. must appear in your company name.
- Your corporation must not be similar to that of another company in the state. To see whether a specific business name is in use, go to the Secretary of State’s website and do a search. If you want to find out if your name is available in California check out the California name search.
- A business name could include words which are used to represent a government entity (i.e., State Department, CIA, FBI, Treasury, etc.)
- Further documentation and licensing papers may be required for certain limited words (bank, lawyer, attorney, credit union, and so on).
- It is different from any other company or fictitious business name (DBA) authorized in the state of California.
Is it possible to get the URL? We suggest taking a look online to see whether your company name is accessible as a web domain. Though if you don’t intend to create a company website right now, you may wish to purchase the URL to prevent others from doing so.
You can reserve your LLC name for a nominal cost if you aren’t ready to register it but are worried that it will be taken by someone else. By paying the money and submitting the required form to the state authority, names in California can be reserved for up to 60 days.
2. Appoint A Registered Agent In California
Every California limited liability company (LLC) is required to have a registered agent This is a person or company who agrees to take legal documents on behalf of the LLC if it is issued. For service of process, an LLC may not act as its own agent. Prior to designation, the representative must agree to take service of proceedings on behalf of the limited liability corporation. Read our guide on top registered agent services for your startup.
Agents must be California citizens, with a street address recorded in the LLC’s articles of organization. The representative can be a member, manager, or officer of the LLC, but he or she does not have to be related to it.
Also, read our guide on How To Register Your Business Name In The US Online
A registered agent must meet the following criteria which are as follows:
- Registered agent services must be provided by organizations or businesses
- The agent must have a California address.
- During regular business hours, the agent must be on-site and prepared to receive the paperwork.
Other additional reasons for hiring a registered agent service include:
- Getting potentially unpleasant paperwork in private (for example, legal action launched against you)
- The ability to transfer your office without having to notify the state of your new address as your registered agent.
Why Do I Need A California Registered Agent?
A California registered agent is legally required, and the California Secretary of State will not approve your registration documents unless you already have one.
This is because you’ll need to obtain legal paperwork, and someone will need to be available during regular office hours to accept them. Furthermore, many business owners used to work their maximum business hours, making service of processes difficult to accept. As a result, you’ll need to hire a registered agent on your behalf.
3. File Your California LLC Articles Of Organization
To properly register your California LLC, draft Articles of Organization and file them with the California Secretary of State. Even if it might appear to be a massive task, it merely entails completing and submitting your documents online, by mail, or in person.
The Articles of Organization are a legal document that forms your limited liability company (LLC) by setting out fundamental information about it. You’ll have to file Form LLC-1 – Articles of Organization with the California Secretary of State to register your California LLC. The filing cost is $70.
You’ll typically need the following information to prepare your articles:
- Name and address of your LLC
- The LLC’s primary focus.
- Your registered agent’s name and address.
- Need to decide the management structure whether the LLC be managed by its members or by its managers
- The Articles must be approved by the individual forming the LLC.
You must have your LLC name and registered authorized agent before you begin filing. A copy of your Name Reservation Certificate, as well as a list of the services that your California LLC will provide, will be included.
4. Decide On Member Vs Manager Management
Usually, small multi-member LLCs choose to be governed by their members directly, however, LLCs can designate a director or small team of leaders to supervise the LLC, similar to how a board of directors monitors a company. Managers vote on important decisions like getting a loan, buying property, or modifying strategic goals.
5. Receive A Certificate From The State
After your LLC formation documents are filed and approved then the state will issue a certificate that confirms that your LLC formally exists. If you want to receive your certificate quick filing online is the best option out there.
This certificate will help you get an:
- Employer Identification Number (EIN)
- Business Licenses, and
- Business Bank Account
6. Prepare A California LLC Operating Agreement
An operating agreement is required under California law, although it is not required to be filed. A documented operating agreement is beneficial for a variety of reasons, including settling conflicts about financial arrangements and avoiding possible lawsuits. Without a contract in existence, the courts will make decisions based on state legislation, rather than what is best for the LLC and its shareholders.
Maintaining limited liability protection, opening a business bank account, and settling member disagreements all require an operating agreement. When forming an LLC in California, you are not obliged to have a detailed LLC operating agreement, but it is a good idea to have one that covers all aspects of your company. If you choose to terminate Californa LLC afterward, this paperwork will prove to be very helpful.
The following information may be included in the operating agreement, but is not limited to:
- Name of the LLC and its primary address
- The time span of the LLC
- The registered agent’s name and address
- Information on the Organization’s Articles of Incorporation
- The main purpose of your business
- Members and the contributions they make
- The manner in which gains and losses will be distributed
- The process for enrolling new members and releasing departing members is explained
- The LLC’s management
- Clauses of indemnity and liability
7. File A Statement Of Incorporation
Within 90 days of filing their articles of organization, every California and international LLC must submit a Statement of Information, Form LLC-12, to the California Secretary of State. After that, every two years, a Statement of Information must be filed. The filing period is comprised of the calendar month in which the original articles of incorporation were filed, as well as the five previous calendar months. Moreover, you can file the statement online or download or mail it to the California Secretary Of State.
The Statement of Information must include the following:
- the name of the LLC and the file number with the California Secretary of State
- the name and address of the LLC’s agent
- the LLC’s major executive office’s street address
- If the LLC’s mailing address varies from its major executive office’s street location,
- Any manager or chief executive officer’s name and complete business or residential address, or if no manager is elected, each member’s name and business or residence address
- A valid email address and if the LLC prefers to receive renewal notices and other information from the Secretary of State through email
- The LLC’s principal business activity
8. Get A California LLC EIN
Employer Identification Number (EIN) is an abbreviation for Employer Identification Number. The Internal Revenue Service (IRS) assigns EINs to businesses to assist them to be identified for tax purposes.
Even if your LLC has no employees, you will need to acquire an IRS Employer Identification Number (EIN) if it has more than one member. You only need an EIN for a one-member LLC if it will have the personnel or if you choose to have it taxable as a company rather than a sole proprietorship. If you want to get an EIN online, you need to fill out IRS Form SS-4 and there is a filing fee required.
An EIN is required to help you:
- To file and manage taxes at both the state and federal levels
- Open a bank account for your business
- For hiring employees
9. Pay Your California State Tax Obligations
If an LLC or a foreign LLC is formed, registered, and conducts business in California, they must pay California taxes to the California Franchise Tax Board. They are taxable as a partnership or sole proprietorship if they have not decided to be taxed as an organization. Furthermore, California LLCs that are taxed as companies must follow the state’s corporate tax laws and regulations.
If an LLC wants to run a business in California, it must pay an annual minimal franchise tax of $800. If your LLC net income is over $250,000 then an additional annual fee is required. LLCs formed in California in the years 2021, 2022, or 2023 are exempt. An LLC that files to do business in California is exempt from the state’s $800 minimum annual franchise tax for the first taxable year under the new legislation. The LLC must pay the $800 fee in the second taxable year.
What Are The Next Steps After Forming An LLC In California?
The formation of your LLC provides you with a legal basis on which to conduct business. Always intend to keep your LLC up to date and legal on the state’s website.
Every LLC operating business in California is required to submit a yearly report which is known as a Statement of Information and pay a fee with the Secretary of State. The report must be filed every two years during a six-month filing period based on the month the LLC was created.
Taxes must be paid by the LLC. If your LLC has employees, you’ll need to register with the California Employer Development Department and pay the required employer taxes. In case your LLC will focus on selling goods and receiving sales tax then you must register with the proper California taxation authority. Moreover, you must file with the California State Board of Equalization if you collect sales tax.
You must appoint a registered agent to conduct business on your behalf. A registered LLC will help you to do the following:
- Get the essential permits and licenses, such as health department licenses, building permits, residential occupation permits, business licenses, and more, to run your business. To perform transactions in some states, you’ll need a seller’s permit.
- Assist you in opening a business bank account.
- Make an application for a company credit card.
- Make a company insurance purchase.
- With a trademark, you can protect your company’s name and logo.
- The state’s tax agency will need you to register your business.
How Much Does It Cost To Start An LLC In California?
Generally, incorporating an LLC in California does not come at a high price. The principal expense in California is a one-time fee such as a name reservation fee ($20) and a business filing fee ($70). Aside from these fees, California LLCs do not have to pay any additional taxes or a significant amount of federal income taxes. There is a cost for expedited and late filings in addition to the filing fee. LLCs may be required to pay ’employer taxes’ to the government in this situation. Aside from that, there is no tax burden on LLCs in California.
A charge for the registered agent services should be paid in addition to that. LLCs need not be required to pay income tax individually in California, regardless of annual income. The LLC’s members must, however, pay their own federal taxes.
How Fast Can I Form An LLC In California?
The choice of a name is the first step in forming an LLC. The name you choose must be connected to the type of business you intend to create and must be authorized by the state government. You could search on the web to see if the name you want is available. You can then use that information to complete the Articles of Organization for your LLC. After you’ve decided on a name, you’ll need to register it with the Secretary of State in California.
The state will execute your Articles of Organization once you’ve decided on a name. The process generally takes one to two weeks, but you can pay an additional charge to have it done sooner. The LLC’s Articles of Organization will inquire about the LLC’s members and organizational structure. Each LLC must have at least one administrator who will serve as the company’s chief executive officer.
After you’ve decided on a name, you’ll need to apply for all of the required permits and licenses. To acquire these permits, you should pay a fee, failure can charge hefty fees. Without the assistance of a lawyer, you can finish the full process online as the process is very simple. An application can also be sent by fax or mail. The drawback is the time it will take to provide you with an answer.
LLCs are less complicated to form than other business arrangements. Small firms, particularly startups, would find it the cheapest way to form an LLC in California. LLCs benefit from a ‘pass-through taxation’ advantage, which allows them to avoid paying some taxes. Limited liability businesses require less documentation and legal procedures to form.
Are you ready to start an LLC in California? If you have queries, just leave them below. We’re here to assist you at every step of the way!
Frequently Asked Questions (FAQs)
1. How long does it take for an LLC to be approved in California?
Approval of mail filings for California LLCs takes about 2-3 weeks in total. This includes the processing period of 3-5 working days as well as the duration your documents are in the mailbox. Whereas online filings for California LLCs take 3-5 business days in total.
2. How much does it cost to create an LLC in California?
The secretary of state’s charge for forming a California LLC is $85. In addition, a $20 filing fee is required for the California LLC statement of information, which must be filed within 90 days of the LLC’s creation.
3. How can I avoid the $800 franchise tax?
You can delay forming your firm until January or specify a “future file date” on your articles of organization or incorporation when you file to prevent back-to-back California Franchise Tax payments.
4. Do I need to register my LLC in California?
Whoever operates a business in California must register and form their legal entity with the California Secretary of State’s Office. You must also file the necessary taxes, register as an employer, and obtain business licenses and other permissions from the appropriate cities or counties.
5. Do I have to pay franchise tax in California the first year?
The minimal franchise tax does not apply to your first tax year. Your tax is higher than your California net earnings divided by the applicable tax rate or the minimum franchise tax after the first year.
6. What are the benefits of an LLC in California?
The main advantage of incorporating a limited liability corporation (LLC) in California is the liability protection it provides. Other benefits include:
2. Name registration.
3. Tax options like S corp.
4. Increased credibility.
5. Name registration.
6. Ownership flexibility.
7. Pass-through taxation.
7. Do I need an operating agreement for my California LLC?
Operating agreements are not required in California for LLCs, although they are highly recommended. An operating agreement will assist protect your limited liability status, eliminate financial and management conflicts, and ensure that you, not state law, choose the rules that govern your organization.
8. Is California waiving LLC fees?
According to the new laws, any LLC, LP, or LLP that files, registers, or organizes to conduct business in California for the first taxable year is exempt from the state’s $800 minimum annual franchise tax for the period beginning January 1, 2021, and ending December 31, 2023.
9. How is an LLC taxed in California?
California corporate taxes are paid by your LLC. If you’re taxed as a C Corp, your net income is taxed at a flat rate of 8.84 percent. In case you are taxed as an S Corp you need to pay a 1.5 percent tax on net income.
10. What is a franchise tax in California?
S corporations, standard limited liability companies (LLCs), limited partnerships (LPs), and limited liability partnerships (LLPs), as well as conventional corporations (C corporations) and LLCs electing to be treated as C corporations, are subject to California’s franchise tax, which is basically a tax on doing business in California.