How to Form a California LLC

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California LLC Quick Facts

California LLC Costs

Initial Filing Fees – $70-$85

 

Annual Recurring State Fees:

 

  • $20 Statement of Information Fee
  • $800 Franchise Tax

LLC Processing Time

3-4 weeks, however, expedited processing is available for an additional fee.

Don’t want to form an LLC by yourself?

Let IncFile or IncAuthority guide you through the LLC formation process, so you know everything was done right. Only pay state fees!

Quick Reference

The Limited Liability Company (LLC) is a popular business structure for many businesses starting in California.  The LLC is created under state law and provides personal liability protection, and has the potential to save money on taxes. With a little research, you can learn how to form an LLC in California without an attorney.

Unlike a sole proprietorship or partnership where the small business owner can be held personally liable for lawsuits against the business, the LLC is a separate legal structure, which provides asset protection because the entity separates the business assets from the business owner’s personal assets.

Related: How Does an LLC Protect You?

Besides having liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration and, management flexibility.

To form a Limited Liability Company in the state of California, file the Articles of Organization with the California Secretary of State.  The LLC filing fee is $70.

Approval for the LLC typically takes 3-4 weeks, however by filing in-person at the Sacramento office (1500 11th Street) and paying an additional $15, the processing time is typically reduced to only 1-2 business days.

Forming an LLC can be both affordable and is something most people can do themselves. Entity formation companies like IncFile or IncAuthority help guide you through the process and make sure there are no mistakes.

Related: Should you use a Formation Service, Hire an Attorney or Do it Yourself?

Guide to Forming an LLC in California

The steps for online filing or by mail are mostly the same.  The screenshots show filing online.

To get started, either register with the California Secretary of State or download the Articles of Organization (Form LLC-1).

File a California LLC

Step 1: Limited Liability Company Purpose Statement and Name

Purpose Statement – No action necessary.  Keep the statement “The purpose of the limited liability company is to engage in any lawful act or business activity for which a limited liability company may be organized under the California Revised Uniform Limited Liability Company Act.”

Related: How to Answer the Business Purpose Statement

Limited Liability Company Name – Enter the name of the LLC.  Be sure not to include any identifiers (LLC, L.C., etc.) in this box. There are a few naming guidelines to follow.

Before entering a name, you will want to do a name availability search as each LLC must have a unique name in California. Check on available LLC names to do a business name search. The name of the LLC also has to not likely to mislead the public or include words that may imply the LLC being a government agency.

Before selecting an LLC’s name, you may also want to see if a domain name is also available.

If you aren’t ready to form your LLC but want to reserve a name, an available name may be reserved for up to 60 days by filing a Name Reservation Request form. The cost to reserve is $10.

LLC Identifier – Under California law, the legal name of the LLC must include one of the following words or abbreviations at the end of the business name:

  • Limited Liability Company
  • Limited Liability Co.
  • Ltd. Liability Company
  • Ltd. Liability Co.
  • L.L.C.
  • LLC

Name Reservation – If you have already reserved a name, check the box and enter the Name Reservation Number so it can be applied to this LLC filing.

Before finalizing on a name, read about the LLC Name Requirements in California.

California LLC Name Registration

Step 2: Business Address

In this section, enter the physical street address, city, and zip code of the initial designated office.  This address can be the office address of the LLC, or it can be the mailing address where the business records are kept.  You may not use a PO Box for the designated office.

CA LLC Business Address Registration

Step 3: Service of Process

To have a Limited Liability Company in LLC in California, a Registered Agent must be identified.  The Registered Agent is either a California resident (Individual) or a registered agent service (California Registered Corporate Agent). The agent must have a physical address in the state and be available during normal business hours. This person will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc. on behalf of the LLC.  To see a list of approved Registered Agents, visit https://businessfilings.sos.ca.gov/frmlist1505s.asp.

You are not required to pay for a registered agent. Any individual meeting the above requirements can be the agent, however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when they are doing business from home or still employed.  Hiring a company like Northwest Registered Agent to be the Registered Agent will reduce the number of unwanted phone calls and mailings.

California LLC Registered Agent

Step 4: Management

This section asks if the LLC is managed by one manager, more than one manager, or all limited liability company member(s).  Every LLC will have at least one member.

There are three choices:

  • One Manager – This is when the members of the LLC hire somebody to run the company,  similar to the position of CEO for a corporation.  This is commonly referred to as a Manager-Managed LLC.
  • More than One Manager – Also a Manager-Managed LLC, but with multiple managers.
  • All LLC Members – The members themselves are the “managers” and have active involvement in the business’s day-to-day operations.  This is commonly referred to as a Member-Managed LLC.

Most LLCs are member-managed and, if so, would select all liability company member(s).

Related: What is the Difference Between a Member-Managed LLC and Manager Managed LLC?

CA LLC Management Structure

Step 5: Organizer

Enter the name of the person who is filing the LLC paperwork and the central point of contact.  The LLC organizer could be a member or someone helping with the entity formation.

California LLC Organizer

Step 6: File Date

If you want the LLC to start on today’s date, choose “No, I do NOT want a Future File Date”; otherwise, select “Yes, I would like a Future File Date” and enter a date less than 90 days in the future to start.

Some will delay the LLC’s effective date to start if they aren’t ready to form the LLC but want the filing out of the way or are close to the end of a calendar year and want to save on some fees.  At the end of each year, a California LLC will pay a minimum franchise tax of $800 and file annual tax returns.

CA LLC Effective Date

Step 7: Review

Review the Articles of Organization to ensure all of the information is correct.

Step 8: Pay and File Articles of Organization

Pay and file the California Articles of Organization.

If filing online, enter your credit card information.

If mailing, send the form and a check for $70 to:
Secretary of State, Business Entity Filings
P.O. Box 944228
Sacramento, CA 94244-2280

If delivering in person, the cost is $85 and can be paid with a check, money order, or credit card.  The office is located at:
Secretary of State
1500 11th Street
Sacramento, CA 95814

If you have questions, contact the California Secretary of State.

916-653-3794
http://www.sos.ca.gov/

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Tasks After Forming Your LLC

Once the Limited Liability Company has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.

File the Initial Statement of Information

Within 90 days of filing the Articles of Organization, the Initial Statement of Information (Form LLC-12) will need to be submitted to the California Secretary of State. The filing fee is $20, and if not filed within 90 days, a $250 penalty will be assessed.

Prepare an LLC Operating Agreement

The operating agreement is a document that governs the framework of an LLC.  This document covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.

Most states do not require an LLC to have an operating agreement; however, it is required in California.  In addition to it being required, the operating agreement is useful as it helps to improve member’s liability protection and reduce misunderstandings of the member’s roles and responsibilities.

Related: California operating agreement template

Obtain an EIN

The EIN or Employer Identification Number (also called a Federal Employer Identification Number or FEIN) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed in order to hire employees, open a bank account, register for business licenses and permits, file tax returns, and more.

There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can register by phone, fax, or mailing IRS Form SS-4.

Related: How to Apply for an EIN

Elect the LLC’s Form of Federal Income Taxation

One of the major benefits of the Limited Liability Company is the tax flexibility it provides.  When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:

  • Sole proprietorship
  • Partnership
  • C-corporation
  • S-corporation

While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.

Related: How can an LLC be taxed?

By default, LLCs are pass-through taxation entities. Instead of the LLC paying taxes on profits, the profits or losses flow through to the members.

Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can elect to be taxed as a C-corporation or an S-corporation.

Multi-member LLCs will, by default, be taxed as a partnership. The members can elect to be taxed as a C-corporation or an S-corporation.

In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership.  As a result, the owner will pay income tax and self-employment taxes on all business profits.  As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes.  Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.

Before electing how your Limited Liability Company will be taxed, be sure to talk with an accountant to assess which one will be best for you.

Open an LLC Bank Account

Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.

Several documents will be needed to open a business checking account, such as:

  • A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
  • Copies of the original formation paperwork from the state showing the creation of the LLC.
  • Driver’s licenses of the members.
  • Depending on the LLC age, a California Certificate of Good Standing may be needed to prove the LLC is active and in good standing with the state.

Related: How to Open a Business Bank Account for your LLC 

Apply for Business Licenses and Permits

Depending on what your business does and where it is located, there will likely be various business licenses and permits to register for. Some common registrations include:

  • Business License – Some cities in California require businesses to obtain licensing before they can start.
  • Professional License – Certain professional services such as barbershops, accountants, salons, and others must be licensed.
  • Seller’s Permit – In order to sell products and provide services, registration with the California Department of Tax & Fee Administration will be necessary to collect sales tax.

Related: What Business Licenses are Needed in California?

Pay the Annual Franchise Tax

When starting a California Limited Liability Company, something to keep in mind is that each year the LLC has to pay a minimum franchise tax fee of $800 to the California Franchise Tax Board.  The franchise tax is based on the gross receipts (total income) of the LLC. If you are filing towards the end of a calendar year and can wait, you might consider delaying the filing until January.

The Franchise Tax filing (Form 3522) is due by the 15th day of the 4th month after the LLC was formed (April 15th for most LLCs).

There is also a gross receipts tax for businesses in California that can be paid when completing Form 3522. The gross receipts tax varies based on the annual net revenue of the LLC.  This second California tax is only assessed on LLCs and not corporations. Once gross revenue exceeds $250,000, there will be an additional LLC tax of $900.

File the Limited Liability Company Return of Income Form

LLCs that elect to be taxed as a disregarded entity or partnership will need to file the Limited Liability Company Return of Income form (Form 568).  This form reflects the financial activity in your LLC and is a sort of master form to make sure all of the taxes for your business were paid.

File the Annual Statement of Information

LLCs are required to file a Statement of Information (Form SI-550) every 2 years with the California Secretary of State.  The first statement is due within 90 days of the LLC being approved.  The statement of information updates ownership information and other details.

Related: How to File the California Statement of Information