An LLC provides tax advantages and liability protection, benefiting small businesses. Beyond movie stars and beaches, California is a thriving hub for businesses. It’s the leading contributor to the US GDP. If you’re starting an LLC in California, we’ve listed a detailed guide to kickstart your journey. Find out how to start an LLC in California.
1. Choose a Name For Your California LLC
Selecting a name when considering how to start an LLC in California is crucial. You may have a few names in mind for your new LLC. It’s time to pick one, but this step means more than just choosing a name.
Before registering your LLC, choose a name that meets California’s requirements:
- Must include Limited Liability Company, LLC, or L.L.C. You can abbreviate “company” to “Co.” and “limited” to “Ltd.”
- Your chosen name needs to be distinct from the names of currently operating businesses in California.
- Words that could cause confusion between your business and a government entity, like “treasury” or “state department,” should be avoided in your name.
- Some words may need extra paperwork (e.g., bank, lawyer).
- The name you choose for your LLC must not mislead the public. It can’t falsely imply any of the following:
- Professional corporation terms: Prohibited terms like “Professional Corporation,” “Prof Corp,” “P.C.,” or “PC” can’t be part of your LLC’s name.
- Insurer implications: If your business isn’t an insurer under California’s Insurance Code, refrain from names suggesting insurance operations. For instance, if “insurance” is in your name, include clarifying terms like “Insurance Agency” or “Insurance Broker” to signify a different business focus.
Business Name Search
Make sure your name is available by searching California business on the California Secretary of State website. If your name is already taken, you must choose a different one. Additionally, review California’s detailed list of naming regulations to help you choose an adequate name and to help you distinguish similar California LLC names.
California LLC Name Reservation
Once you’ve selected an LLC name but aren’t prepared to complete the remaining paperwork, you can reserve your California LLC name for a maximum of 60 days using California’s online business filing system. This ensures you can proceed with your planning without the concern of someone else claiming your chosen name.
Trade Name and DBA Registration
Businesses often register using an LLC name but operate under a “trade name” or “DBA” (short for “doing business as”). This functions as an alternate business alias without including the LLC designation. The CA Secretary of State’s website offers an LLC lookup function to check for other DBAs in use.
Social Media Accounts and Domain Name
Establishing an online presence is crucial, especially in starting a business. Customers expect easy access to information about companies they’re interested in, necessitating a business website and the creation of social media accounts.
When securing a domain name, your desired .com URL might not be available. However, there are numerous ways to create a domain name that embodies your brand effectively.
After registering your domain name, allocate time to construct your website or enlist a website designer.
2. Choose a Registered Agent
To understand how to start an LLC in California, it’s crucial to note that appointing a registered agent for your LLC is obligatory in the state.
A registered agent is an individual or entity responsible for receiving tax and legal documents on behalf of the business.
A registered agent must meet specific criteria:
- Entities must offer registered agent services.
- The agent must possess a California address.
- Availability during standard business hours to accept documents on-site is mandatory.
- The agent must be at least 18 years old and have a physical address in California (not a P.O. box).
Many California LLC owners choose a registered agent service for a fee to handle essential documents and filings, ensuring availability during business hours. This lets owners focus on their business while keeping their private addresses off public records.
Choosing a registered agent service costs between $50 to $150 annually. Some companies offer the first year free with their business formation services. Prioritize thorough research before hiring to ensure you get value for your investment.
3. File Your LLC Paperwork
Several options are available when proceeding with your California LLC formation:
- Online filing: The quickest way to start your California LLC is by filing the paperwork online.
- File by mail: If you mail your documents, download and complete Form LLC-1 (Articles of Organization). Remember to enclose a check or money order for any required fees payable to the Secretary of State.
- File in person: You can also file and submit your paperwork in person, but this method costs a $15 fee.
California’s standard LLC filing fee is $70, yet the state temporarily waived this fee for applications from July 1, 2022-June 30, 2023. However, a $5 certification fee is required if you seek a certified copy of your registration.
For foreign LLCs (those formed in another state) aiming to operate in California, the registration involves completing Form LLC-5 (Application to Register a Foreign Limited Liability Company). Additionally, you’ll need to submit a valid certificate of good standing issued by your LLC’s home state.
File the Articles of Organization
The Articles of Organization is an important document that officially establishes your California LLC. You can file these articles using Form LLC-1.
To properly register your California LLC, submit the Articles of Organization to the Secretary of State.
In getting your articles ready, you’ll generally require this information:
- Your LLC’s name and address
- Purpose of the LLC
- Registered agent’s name and address
- Management structure preference (members or managers overseeing the LLC)
- The LLC’s creator must sign the Articles.
Once filed, the secretary of state reviews them. Approval grants the LLC legal entity status. You can submit the application by mail, online submission, or in-person delivery.
| Form to File | Articles of Organization (LLC) |
| How to File | Online: CA Secretary of State portal and create a user account) Mail-in Address: Secretary of StateBusiness Entities FilingsP.O. Box 944228Sacramento, CA 94244 In Person Address: 1500 11th StreetSacramento, CA 95814(additional $15 fee) |
| Filing Fee | Filing fees waived for period July 1, 2022 – June 30, 2023 |
File the Statement of Information
Once your articles of organization are accepted, your LLC is official! In California, you must also file an initial “Statement of Information” within 90 days of starting your LLC. After that, you must renew this statement every two years to keep your California business running. This recurring report, known as a “Biennial Report,” is submitted using Form LLC-12 and should include the following:
- Your LLC’s name and California Secretary of State entity number
- Agent’s name and address for service of process
- Business description of your LLC’s services
- Principal executive office street address
- LLC’s mailing address (if different from the principal administrative office)
- Details of managers or chief executive officers (or member details if no manager is appointed)
- A valid email address if choosing electronic notices from the Secretary of State
| Form to File | Initial Statement of Information (LLC) |
| How to File | Online:CA Secretary of State portal (login and search for your business) Mail-in Address: Secretary of StateBusiness Entities FilingsP.O. Box 944228Sacramento, CA 94244 In Person Address: 1500 11th StreetSacramento, CA 95814(additional $15 fee) |
| Filing Fee | $20 |
3. Receive a Certificate From the CA State
The state issues a confirming certificate after filing and approving your LLC’s formation documents. Filing online is the fastest route to receive it. This certificate enables the LLC to secure an Employer Identification Number (EIN), business licenses, and a business bank account.
4. Create an Operating Agreement
In five states, California being one of them, businesses must create an operating agreement, a requisite for LLC owners before or after formation in written form. This document outlines your business’s ownership structure and operational guidelines, covering essential details like member and manager roles, profit and loss distribution methods, and buyout protocols.
The operating agreement fulfills various critical functions, emphasizing its importance as a primary focus for your new business.
- It provides written documentation indicating members’ intent to restrict liability through LLC formation. Without an operating agreement, the business structure might be uncertain to an outsider.
- It outlines and formalizes member agreements (e.g., individual contributions to the LLC), preventing future misunderstandings and laying a robust groundwork for conflict resolution.
- It guarantees California’s recognition of your business as an LLC.
The operating agreement includes the following:
- LLC’s name and primary location
- Duration of the LLC’s existence
- Details of the registered agent’s name and address
- Pertinent information regarding the Articles of Organization
- Business purpose
- Members and their respective contributions
- Allocation of profits and losses
- Protocol for admitting or exiting members
- The governance structure of the LLC
- Clauses related to indemnification and liability
File a Statement of Information
California LLCs must submit a Statement of Information to the Secretary of State within 90 days of formation. This statement covers:
- LLC’s name and file number with the Secretary of State
- Agent name and address
- Principal executive office and mailing address
- Details of managers, chief executive officers, or members if no manager is elected
- Optional email address for renewal notifications
- Principal business activity
5. Obtain an Employer Identification Number or EIN
Obtain an EIN, a nine-digit number from the IRS, to identify your LLC for tax purposes. You can get it via mail or online. An EIN helps:
- Handle state and federal tax filing
- Open a business bank account
- Hire employees.
California Business Entity Number
Once your LLC articles are accepted, you receive a 12-digit Business Entity number from the Secretary of State. This number verifies your business identity in California and fulfills annual filing requirements.
Federal Employer Identification Number (EIN)
For multi-member LLCs or hiring employees, an EIN is necessary. It’s like a Social Security number for your business, used for payroll, taxes, and business operations. Apply free online via the IRS. Even single-member LLCs benefit from an EIN, preventing the need to use personal Social Security numbers for business and reducing identity theft risk. Services can assist in obtaining an EIN for a fee.
6. Pay the Yearly Franchise Tax
In California, LLCs must pay an annual $800 franchise tax, regardless of income, and an additional fee if annual gross revenues surpass $250,000.
However, LLCs formed in California in 2021, 2022, or 2023 are exempt from the $800 franchise tax for their first taxable year. In the second year, the $800 fee applies.
Should You Start an LLC?
Pros:
- Inexpensive to launch
- Limited liability protection
- No formal meeting records
- Flexible profit distribution
Cons:
- Federal and state fillings
- Annual state filing fees
- Dissolution from bankruptcy
- No stock issuances
What’s Next?
When you register your LLC, you establish its legal standing for operations. Ensure ongoing compliance by maintaining active status on the state’s website.
LLCs in California must file a biennial report, known as a Statement of Information, and pay a fee. This report is due every two years within a six-month filing window based on the LLC’s formation month.
Tax responsibilities include payments owed by the LLC. If your LLC hires employees, you must register with the California Employer Development Department and fulfill employer tax obligations. Selling goods and collecting sales tax requires registration with the appropriate California taxing authority, such as the State Board of Equalization.
Additionally, it’s essential to retain a registered agent for your business.
A registered LLC enables you to:
- Obtain essential permits or licenses for operations (e.g., health department, zoning, professional licenses) and potentially a seller’s permit for sales in some states.
- Register your business with the state’s tax authority.
- Open a business bank account and apply for a business credit card.
- Secure business insurance.
- Safeguard your name and logo by trademarking them.
LLC State Guides
How to Start an LLC in California FAQs
Yes, starting an LLC in California incurs a $800 annual fee. Additional fees apply if your business earns over $250,000. Depending on your business operations, sales and use of employment taxes may also apply. LLCs formed in 2022 or 2023 enjoy a one-year exemption from the $800 fee.
Dissolving a California LLC involves following the dissolution procedure outlined in your LLC’s articles of organization or operating agreement. Typically, filing a Certificate of Cancellation and a Certificate of Dissolution is required. Post-dissolution, checking with the state for further steps is advisable.
A foreign LLC formed in another state can conduct business in California by filing an out-of-state LLC registration (Form LLC-5) with the California Secretary of State. The filing requires a certificate of good standing from the state where the LLC originated.
California doesn’t permit the formation of professional LLCs. However, certain licensed professionals might form limited liability partnerships under state partnership laws. Consulting an attorney in California business law is recommended for licensed professionals exploring limited liability entities.
Tax filings are necessary if your LLC opts for taxation as a corporation, even without income. Corporate entities must submit annual tax filings, as required by law. Additionally, California LLCs need to file Form 568.
The initial filing process typically takes around a week, excluding planning time. California usually processes LLC formations within five business days, sometimes faster. Tracking processing times online is possible in California.
