California LLC
How To Start an LLC in California
California is a great place to start a business. The economy in this state ranks fifth in the world, just behind the U.S. as a whole, China, Japan and Germany. Between 2015 and 2019, the Golden State grew faster than three out of the four highest economies. Only China’s economy grew faster (29% compared to 22%).
Small businesses are important to California’s economic health. They make up 99.8% of all businesses in the state. In 2019, there were around 4 million small businesses registered in the state. These companies employed nearly half of the state’s workers. Your new company will join these numbers and contribute to this state’s healthy economy. Follow these steps to get your company off the ground.
Step 1
Choose a Name for Your Limited Liability Corporation
The first step in the process is to pick out a name for your LLC. There are a few rules you must follow when you choose a name. California law says that your company name:
- Can’t contain any words that people may confuse with a government entity
- Can’t be the same as any other business registered in the state
- Must contain the phrase “limited liability corporation” or another recognized form, such as LLC, Limited, or Ltd
Once you decide on a name, you must make sure it isn’t already in use by a registered LLC in California. Use the Secretary of State’s business search tool to find out if another LLC is operating under the same name in the state.
After you make sure your name is compliant and available, it’s a good idea to see if the domain name is also available. Most small businesses in today’s tech-centered world have a website for their company. If the domain name is available, you may want to secure it right away.
Step 1
Choose a Name for Your Limited Liability Corporation
The first step in the process is to pick out a name for your LLC. There are a few rules you must follow when you choose a name. California law says that your company name:
- Can’t contain any words that people may confuse with a government entity
- Can’t be the same as any other business registered in the state
- Must contain the phrase “limited liability corporation” or another recognized form, such as LLC, Limited, or Ltd
Once you decide on a name, you must make sure it isn’t already in use by a registered LLC in California. Use the Secretary of State’s business search tool to find out if another LLC is operating under the same name in the state.
After you make sure your name is compliant and available, it’s a good idea to see if the domain name is also available. Most small businesses in today’s tech-centered world have a website for their company. If the domain name is available, you may want to secure it right away.
Step 2
Designate a Registered Agent in California
Every LLC in California needs a registered agent (also known as an agent for service of process in California). This agent is the person who is responsible for receiving legal documents, tax forms, government notifications and lawsuit notices.
You can choose yourself to act as the registered agent, or you can designate someone else in the company. Some business owners choose a friend or family member to fill the role. Additionally, there are numerous registered agent businesses you can hire to serve in this capacity.
Step 3
Complete and File Your LLC California Articles of Organization
This next step is the one that actually forms your limited liability corporation. Every LLC needs Articles of Organization. This document is a legal form that lays out your company’s structure, including the rights, responsibilities, liabilities and powers for LLC members. Even if you are the sole member of your company, you still need to complete this document.
California offers online, in-person, or mail-in filing services for completing the Articles of Organization. The basic filing fee is $70. If you file online or by mail, you only pay this fee. When filing in person, the SOS tacks on an additional $15. This fee bumps up your processing time over mail-in orders.
Online and in-person applications usually take three to five business days to process. Mail-in applications take four to six days from the date the SOS receives your forms. You can check the SOS website to find out the receipt dates office is currently reviewing. If you need quicker service, the Secretary of State offers expedited services. For same-day processing, the fee is $750, and for 24-hour processing, the cost is $350. People who pay for preclearance services (a $250-$500 fee) can get four-hour processing for an additional $500.
Step 4
Obtain Your Employer Identification Number
The Internal Revenue Service assigns a nine-digit EIN to every business entity. The federal government legally requires this number, and the IRS uses it for tax purposes. An EIN is like your company’s Social Security Number. You will also use this number for filing state taxes, opening a business bank account and hiring any employees.
It won’t cost you anything to get your EIN. It’s important to note that the website times out after 15 minutes of inactivity. You also can’t save your application and come back to it later. Anyone who forms an LLC in California must obtain an EIN. Even if you currently have one for a sole proprietorship, you need a new one for your LLC.
Step 5
Create the Company’s Operating Agreement
California law requires limited liability corporations to have an operating agreement. This is an internal document you keep with your business files. The operating agreement identifies LLC members and provides ownership percentages. Your agreement should also outline operating procedures, profit and loss distributions, tax responsibilities and management structure. You need an operating agreement even if you are the only member of your LLC.
Step 6
Complete and File the Initial Statement of Information
Your Initial Statement of Information is due within the first 90 after you register your business. The statement includes general information about your company such as the business’s physical and mailing addresses, name of the registered agent and member names. If this form isn’t filed on time, you may be fined $250 and risk suspension or forfeiture. The filing fee is $20. You can complete your statement online, in person or by mail.
Step 7
Obtain Necessary Licenses and Permits
If your business industry requires special licenses, it’s important that you have these in hand before opening your doors. If your company sells goods or services at a physical location, you will likely need to obtain permits to operate from your local government.
How To Remain Compliant
Once your business is up and running, you have continued obligations with the state and federal governments to keep it going. It can be challenging to keep up with all the requirements, but it’s a necessary part of running your own company.
Pay the Annual Franchise Tax
The single biggest LLC California cost you have to pay when setting up your business is the annual franchise tax. Regardless of how much money your company makes, you must pay $800 every year to the California Franchise Tax Board. Even if your business is inactive, the state requires you to pay this tax until you cancel your LLC. Your first payment is due on the 15th day of the fourth month after you file your Articles of Organization. Every year after that, your payment is due on this same date.
Pay the LLC Fee
If you expect that your company will do more than $250,000 in business, you will also pay an annual LLC fee to the Franchise Tax Board. The amount you pay is based on your income estimate for the business.
Companies that bring in between $250,000 and $499,999 per year pay $900. Those that make $500,00 to $999,999 pay $2,500. If your business makes between $1,000,000 and $4,999,999, then you would pay $6,000. Any company making more than $5,000,000 pays $11,790. This fee is due on the 15th day of the sixth month of every tax year.
Pay All Taxes
Limited liability corporations have what is known as “pass-through” taxation for federal taxes. What this means is that you file your federal taxes for your LLC with your personal income taxes. In addition to federal taxes, you will need to pay state and municipal taxes.
FAQs
An LLC is a limited liability corporation, a legal business structure that provides benefits that are similar to a corporation while offering business owners greater flexibility. Structuring your company as an LLC California protects your personal assets from business lawsuits. Limited liability corporations can have one or more owners.
No. Most LLCs operate under their legal company name, using it for all aspects of their business. However, if you want to conduct your business under a name that is different from your limited liability corporation name, you can register your DBA name.
Your registered agent can be anyone who is a legal resident in the state where your business is registered. It can be a friend or family member, someone who works for your company or yourself. You may also choose a registered agent company to serve this role.
It depends on how you file. The Secretary of State’s offices processes online and in-person Articles of Organization in three to five business days. Mail-in submissions have the slowest processing times. The SOS offers expedited services for an additional fee. It costs $500 for a pre-clearance four-hour turnaround, $750 for same-day service and $350 for a 24-hour turnaround.
A domestic limited liability corporation is one that is formed in California and does business in California. A foreign LLC is one that was formed in another state or country and registers to do business in California. The process and fees for registering a foreign LLC are the same as for a domestic LLC.
Where To Get Help With Filing Your LLC California Documents
At GovDocFiling, we make it fast, easy, and free for business owners to complete the process with all the information they need. Are you ready to get started? Our partners at Inc Authority will file your Articles of Organization and provide Registered Agent services for one year for free, you only pay mandatory state filing fees.