Learn the Benefits of an LLC

There are many ts to setting up your business as an LLC. LLCs not only have more taxoptions, but they also offer decreased liability, reduced record keeping, and sharing of profits. They are simpler to set up and maintain, with much simpler rules and regulations. There is decidedly less registration paperwork and lower-costing startup expenses

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Decreased Liability
An LLC separates your personal assets from any business decisions made or actions undertaken by the LLC
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Reduced Record Keeping
When compared to a corporation structure, an LLC has less registration paperwork and startup expenses
profit
Sharing of Profits
LLC members might contribute different proportions of capital and sweat equity, and they must determine for themselves what percentage of the profits/losses goes to whom.

But is an LLC the right business structure for you? Some business types come with suggested business structures. For instance, many small business lawyers recommend you create an LLC for an e-commerce business. Why? With e-commerce businesses, products fall under product liability statutes. This means that anyone involved in the sale and distribution of the product could be held liable—even if the problem lies with the manufacturer. An LLC provides you with limited liability in case you are sued by creating a separate and distinct legal entity and isolating business assets from your assets. Therefore, compensation can only be taken from the LLC’s assets, not your personal assets

Why is an LLC a good idea for an e-commerce Business?

If there is an issue with a product, an LLC protects you. Compensation can only be taken from the LLC’s assets, not your personal assets.

Start Your LLC Now
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Besides protecting you and your assets, creating an LLC provides a business owner with more options for federal tax purposes.

  • For instance, if an LLC has only one owner, it’s referred to as a single-member LLC or SMLLC. Owners have the option of being taxed as a Sole Proprietorship, an S Corporation, or a C Corporation.
  • If an LLC has more than one owner, it’s categorized as a multiple-member LLC. Owners have the option of being taxed as a partnership, an S corporation, or a C corporation

All LLC members will need to pay federal and California income tax plus federal self-employment tax on their share of the profits. Self-employment tax covers the Medicare and Social Security contributions that are not withheld from their paycheck. An advantage to having a CA LLC with multiple members is that the members decide how to report profits and losses for tax purposes and have several options as to how they prefer to be taxed (for example, an S or C corp or a partnership).

For federal tax purposes, if you’re the sole member of an LLC, your business is treated as a disregarded entity. This means that although you and your business are separate entities, the SMLLC’s income and expenses are reported on the owner’s personal tax return rather than an SMLLC tax return, and the IRS ignores the SMLLC’s status as a business entity. However, for purposes of employment tax and certain excise taxes, an SMLLC is still considered a separate entity.

In contrast, a corporation only has two choices: S corporation or C corporation. A business operated as a sole proprietorship or a partnership also doesn’t have an option as to how it will be taxed.

LLCs have one significant disadvantage. The IRS and the State of California’s Franchise Tax Board consider LLC members as self-employed. As a result, they each must pay the self-employment tax contributions towards Medicare and Social Security. The entire net income of the LLC is subject to this tax. Despite this disadvantage, creating an LLC for your startup business is usually recommended. It is well worth it to protect your personal assets and simplify the process of starting a business.

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Learn the Benefits of an LLC

For most folks looking to start a business in California, the best type of company to form is what's known as a Limited Liability Company (LLC). An LLC can:

  • Run a business
  • Hold assets (such as office equipment/real estate)
  • Open a bank account
  • Enter into contracts

Assign Member Roles

Now it’s the time to decide whether you will run this business on your own or with another member’s or organization’s assistance, how small or large you intend for your team to be, and which duties each member will have.

There are two types of LLC management structures:
  • Member-managed LLC - These may consist of single or multiple members. Each member plays an active role in the management and operation of the business and has the authority to make decisions to bind the LLC. This is ideal if the business is small, has limited resources, and all members have management skills.
  • Manager-managed LLC - These may consist of single or multiple members, but members must relinquish the authority to the manager and cannot interfere with the manager's operational decisions. This is ideal if your business is too large or complex to efficiently allow the sharing of management duties among all members, or if some of your members do not have management skills.

Member-managed LLC

All members can make authoritative decisions.

Works best when:

  • business is small
  • has limited resources
  • all members are skilled
manager
manager

Member-managed LLC

Only the manager can make authoritative decisions.

Works best when:

  • business is too large/complex
  • not all members are skilled

If you know your LLC will have employees, you also know that you will have to pay them. Plus, you will need to figure out the amount you should deduct from their wages for tax purposes. Employees will need to fill out a W-4 Form, and you will need to give them pay stubs with their tax information. Before this all gets overwhelming, keep in mind that we offer Payroll, Tax and HR compliance solutions with our partner, ADP. We make it easy to pay your employees, track time, and file taxes effortlessly. Plus, you and your employees can view and update payroll information via an app--accessible anywhere, anytime, backed by 24/7 live customer service support.

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Assign Member Roles

Now it’s the time to decide whether you will run this business on your own or with another member’s or organization’s assistance, how small or large you intend for your team to be, and which duties each member will have.

Decide on a Registered Agent

Next, figure out who the Registered Agent for the LLC should be. The California Secretary of State requires every LLC in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately. The Registered Agent will also act as the contact point between your LLC and the Secretary of State’s office. Once you assign someone as your Registered Agent, they can receive official correspondence and documents on behalf of your business.

Generally speaking, a Registered Agent must meet the following requirements:
  • Possess a physical street address located in California (no P.O. Box address).
  • Be available during regular business hours, typically Monday through Friday, 9 am to 5 pm.

Although the most comfortable option for a Registered Agent would be to name yourself, a friend, or a family member, know that this information will be public record. Not only will the information be searchable on the state’s LLC website, it can also be republished on other sites as well. If you work from home and would much rather keep your home address private, this might not be the best choice. An alternative you can look into is hiring a California Registered Agent Service, also known as a Commercial Registered Agent. We offer a Registered Agent Service for a small charge that you can include as an add-on to your shopping cart.

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Decide on a Registered Agent

Next, figure out who the Registered Agent for the LLC should be. The California Secretary of State requires every LLC in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately.

Submit Your Articles
of Organization

To create an LLC in California, you will also need to register your business by filing the Articles of Organization form with the California Secretary of State. This form includes information such as the LLC's name and address, the registered agent’s information, whether the LLC is run by managers or members, etc. If you also have an Operating Agreement written out, you would include a copy of it with the Articles of Organization while submitting it.

Submitting your Articles of Organization is a requirement. Failure to register will result in monetary penalties as well as other legal issues. In addition, anyone owing money to the business will not be obligated to pay.

If filing on your own, there are usually non-refundable fees that you have to pay with check or money order, additional fees for hand-delivery of forms, and long wait times whether in person or by mail--especially if you’re filing for an LLC during peak season. GovDocFiling can speed up the process for you. We offer an easy online application, expedited pricing, and a free business start-up guide and resources with all filings. You can apply here today.

Once your completed Articles of Organization are accepted, congratulations! Your company now exists as a recognized legal entity that is authorized to conduct business within the State of California.

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Submit Your Articles of Organization

Additionally, you’ll need to fill out and submit the Articles of Organization (Form LLC-1). The document outlines what is required to form your LLC—the company name, address, structure, etc. as explained above.

Obtain an Employer
Identification Number

To create an LLC in California, you will also need to register your business by filing the Articles of Organization form with the California Secretary of State. This form includes information such as the LLC's name and address, the registered agent’s information, whether the LLC is run by managers or members, etc. If you also have an Operating Agreement written out, you would include a copy of it with the Articles of Organization while submitting it.

To create an LLC in California, you will also need to register your business by filing the Articles of Organization form with the California Secretary of State. This form includes information such as the LLC's name and address, the registered agent’s information, whether the LLC is run by managers or members, etc. If you also have an Operating Agreement written out, you would include a copy of it with the Articles of Organization while submitting it.

Submitting your Articles of Organization is a requirement. Failure to register will result in monetary penalties as well as other legal issues. In addition, anyone owing money to the business will not be obligated to pay.

If filing on your own, there are usually non-refundable fees that you have to pay with check or money order, additional fees for hand-delivery of forms, and long wait times whether in person or by mail--especially if you’re filing for an LLC during peak season. GovDocFiling can speed up the process for you. We offer an easy online application, expedited pricing, and a free business start-up guide and resources with all filings. You can apply here today.

Once your completed Articles of Organization are accepted, congratulations! Your company now exists as a recognized legal entity that is authorized to conduct business within the State of California.

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Obtain an Employer Identification Number

Additionally, you'll need to fill out and submit the Articles of Organization (Form LLC-1). The document outlines what is required to form your LLC-the company, address, structure, etc. Scroll down the page for more information.

Fill Out an Operating
Agreement

Once you’ve decided on member roles within your LLC, it is time to create a business contract that holds members to their assigned responsibilities. An LLC Operating Agreement is a legal document that determines the financial and working relationships among business owners, members, and managers. Member duties would be explained and “what if” scenarios would be covered (such as what happens if a member leaves the LLC).

While it is not one of the California LLC requirements to have an Operating Agreement it is still a good idea to have one. You may be buried with California LLC paperwork, but form is important to have in order to protect your business. You can have a lawyer look over your Operating Agreement prior to submitting it. Get the legal advice you need to protect yourself with our partner Rocket Lawyer. Your company is responsible for maintaining copies of the Operating Agreement.

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Fill Out an Operating Agreement

Once you’ve decided on member roles within your LLC, it is time to create a business contract that holds members to their assigned responsibilities. An LLC Operating Agreement is a legal document that determines the financial and working relationships among business owners, members, and managers.

Familiarize Yourself with the
State’s Taxes and Licenses

The State of California requires all LLCs to pay an annual Franchise Tax of a minimum of $800 (whether or not your LLC had any activity or revenue that year). This payment is not income tax, but rather the price every LLC must pay each year as the cost of doing business in California. Keep in mind that the first payment is due three and a half months after your LLC is approved--which means if your LLC is approved on March 1, your Franchise Tax fee is due on June 15.

Plus, there is an LLC fee, which increases as the LLC’s revenue goes up. There are a few exceptions, such as when an LLC chooses to be taxed as an S corporation. Brush up on CA’s taxes so that you knowledgeable about all fees that you may be required to pay.

In addition, there may be extra fees for certain insurances, permits, and licenses. For example, you may need worker’s compensation insurance or a building permit, depending on the state’s laws and the type of business you own. Find out the requirements for LLCs in the state you plan to run your business in. Keep in mind that different cities or counties may require certain permits and licenses that other regions do not. Contact your city or county to see if there are any insurances, permits, or licenses you might need to obtain before you begin operating your business.

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Familiarize Yourself with the State’s Taxes and Licenses

The State of California requires all LLCs to pay an annual Franchise Tax of a minimum of $800 (whether or not your LLC had any activity or revenue that year). This payment is not income tax, but rather the price every LLC must pay each year as the cost of doing business in California. Keep in mind that the first payment is due three and a half months after your LLC is approved--which means if your LLC is approved on March 1, your Franchise Tax fee is due on June 15.

Submit Your Statement
of Information

The State of California requires all LLCs to file a report called a Statement of Information. While most states require an annual report, to be submitted annually, it is different for California. The Statement of Information form must be submitted within 90 days of your LLC being approved, and then every 2 years for the lifetime of your LLC.

This particular form is intended to keep your California LLC’s contact information current with the Secretary of State. You can file the report online at the Secretary of State website. It asks some information on your LLC, particularly regarding any necessary updates that were made during the past year. Keep in mind that all of the information you put on the form is accessible to the public on the Secretary of State’s website.

The report can be rather complex– sometimes requiring the deciphering of gross receipts, dividends, interest, losses etc.–and you should seek the help of an accountant to ensure that it is filled out properly. Our partner, Bench, will provide you with a team of accountants to help you with your franchise tax reports, as well as general bookkeeping services with monthly financial statements and intuitive software to monitor your business profits and expenses. But it’s not over yet.

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Submit Your Statement of Information

But it’s not over yet. California requires every LLC to file a Statement of Information form within 90 days of your LLC being approved, and then every 2 years for the lifetime of your LLC. This particular form is intended to keep your California LLC’s contact information current with the Secretary of State.

Raise Funds for Your LLC

You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay if you are not an SMLLC, as well as the costs of operating a business. Some of the most commonly-used options for obtaining funding for your LLC are:

  • Personal savings and assets
  • Informal loans from family and friends
  • Peer-to-peer lending sites or crowdfunding
  • Conventional bank loan
  • Short-term credit card loans
  • Government-sponsored grants/loan programs
  • Adding LLC owners
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Personal Saving/Assets

Use your own savings, liquidate your assets, refinance your home, borrow your Roth IRA, etc.

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Informal Loans From Family/Friends

Ask friends or family members if they would be willing to invest in your business.

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Peer-to-Peer Landing Sites

LLC members might contribute different proportions of capital and sweat equity, and they must determine for themselves what percentage of the profits/losses goes to whom.

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Conventional Bank Loan

LLC members might contribute different proportions of capital and sweat equity, and they must determine for themselves what percentage of the profits/losses goes to whom.

Many new LLC owners begin with their savings to fund their new business venture. If your savings are not enough, you may need to look into liquidating your personal assets or use them as collateral for loans. Can you sell your property or refinance your home? Do you have a retirement account such as a Traditional or Roth IRA? Usually, you can withdraw contributions you made to your IRA anytime, tax- and penalty-free, but that is not always the case. Find out what kind of fees your particular retirement plan will hit you with before using your IRA to fund your business.

Next, look into whether you know someone who shares your passion for your business and has the ability to contribute financially to your dream. These personal connections may want to support your startup idea. Although accepting an informal loan from a close friend or relative may feel safe, you should still protect yourself in case your relationship with the friend or family member goes sour. Have an official contract drawn up that all parties agree to. You can choose to have it notarized and have witnesses present for extra protection.

If you prefer not to borrow from friends and family, you can turn to a peer-to-peer (P2P) or social lending website. A P2P site is a place where investors seek out alternative opportunities to invest outside of stocks and bonds. You can apply for a loan and investors can decide whether or not they wish to fund your proposed business through interest-based loans. You can also look into crowdfunding, which is a way for small businesses or startups to raise money online through donations. These options typically require the ability to promote your business well, ensure complete transparency of where the funds go, and sometimes, the possibility of giving up ownership of a piece of your business. Make sure you look into all of the specifics.

You might be hoping to rely on a conventional loan from a bank, credit union or other lending institution for your main source of funds. In this case, you would need a formal business plan to present during your loan application process. If approved, you would be required to sign a legal contract, or a Promissory Note, outlining your obligations to the lender (which would primarily entail regular payments until the loan is paid off). If you are a first-time business owner, it is likely that you may be rejected initially. In that case, you can improve your application and reapply, or look into alternative sources of funding such as short-term financing via credit cards.

Using a credit card as a means of obtaining a fast and easy business loan would grant you use of immediate funds without the hassle and paperwork of loan applications or business plans. This is the best option for a brand new business, and we work with Nav to give our customers access to the credit they need. Visit our financing page and fill out the form for more information.

There are many credit cards that have low or no annual fees, low introductory interest rates, and other rewards depending on your spending. But be careful: make sure you pay back your credit card before the promotional low interest rate expires and skyrockets, or prior to having to pay large annual fees. And don’t make large purchases that can take years to pay back. For example, getting an equipment loan to purchase a piece of equipment is smarter than putting it on a credit card. Credit cards can be a good temporary solution if your business plan will allow you to pay back the debt quickly.

Another option at your disposal is a government-sponsored grant or loan program. Traditional lenders can turn to federal, state, or local governments to finance their business if such a grant or program is available. Typically, these programs consider sponsoring specific type of businesses or certain business owners, so be sure to research what government-sponsored loan your particular business or you might be eligible for.

Lastly, you can invite new members to your team. If you could see your businesses strategy succeeding with a partner or multiple partners, pool together your financial resources with another member to support your startup. An advantage to this funding option is your partner(s) may come with their own social network of business contacts and possibly even their own potential investors. To protect yourself, you can adjust your Operating Agreement and ensure that you are still the primary owner of the LLC.

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Raise Funds for Your LLC

You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay if you are not an SMLLC, as well as the costs of operating a business.

Create a Business Website

Creating a website for your business is not a requirement but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service. Having a website gives your business legitimacy; your customers will visit your website and see that you are a real company with an actual website where they can read about the company’s origin and products/services and access contact information. Being able to read up on a company on their website leads to trust between a consumer and an organization. Also, dependable customer service is often offered through a website. By offering an email address, a contact form, and/or live chat with a representative on your website, you are making it easy for a customer to get connected with someone knowledgeable about the product/service. That allows a customer to know that there is a real person who cares about their satisfaction within the company that they are doing business with.

Start LLC formation

If the website is outdated or there is no website, a consumer may feel that you are not a legitimate business but a scam with no licenses to back up your business’ operations. You can avoid losing customers due to not having a professional website by ensuring that you have one. We work with GoNorth Websites to provide new businesses with high quality, cost-effective websites. Find out more about our custom designed, written, and developed websites, plus optional internet marketing add-ons that help you grow your business.

But websites needs maintenance too. You can’t simply have one created and never update it throughout the years. Policies and terms change, companies grow, products/services improve, and all of that (and more) can be reflected on the website. This keeps your customers up-to-date and offers a personal touch that is valued by any consumer.

In addition, you can look into having a blog or utilizing social media as another means of keeping your customers in-the-know and offering them a way to interact with your company. An online and/or social media presence can also lead to responsive customers who can offer you feedback on how you’re doing—plus, it’ll help get your company’s name out there.

If this all sounds like more than you’d like to deal with on your own, know that you can hire someone to maintain your website and social media presence for you—just like you can hire customer representatives to handle all correspondence. You can employ a web agency to monitor your website and/or a social media marketing agency to manage your social media campaign. A social media campaign is a coordinated marketing plan that can assist you with your business goals, which translates into extra advertising for your new business. Marketing your company can help you have a more profitable business and can aid you with paying back your business loans quicker—something any business owner aims for. Regardless of industry, all businesses should consider having a website as part of the first steps of starting a business.

The Benefits of Having an Online Presence
benefis_hand
You will show your customers that you are a legitimate business and build trust.
benefis_message
Your company will be easy to correspond with and you can provide good, responsive customer service.
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Your customers will be kept up-to-date on all exciting news related to your business.

If you’ve decided that you want to have a website for your business, keep a few things in mind. When coming up with a website name, make sure that the domain contains your business name and is easy to type and remember for future visits. If you come up with a great web domain that you’d like to use for your business but you don’t plan to create a business website today, you may want to buy the URL to prevent others from acquiring it.

While brainstorming website URLs for your website, you’re going to either realize that you already know what your business is going to be named or that you have no idea what or how to name your business. Here are a few quick trips:

  • Follow LLC naming guidelines. Make sure that the name of your business ends with the phrase “Limited Liability Company” or the abbreviation “LLC.” It’s also important not to use any words or phrases that will make it easy for someone to mistake your company for a federal agency; think “State Department.”
  • Find a unique name. If you’re forming an LLC in the State of California, you will need an original name that is not in use by another LLC. Fortunately, the state has made this part of the process easier; you can search California’s online database of LLC names to see if your preferred company name has already been taken. Or you can request a name’s availability by mailing a completed Name Availability Inquiry Letter to the California Secretary of State’s office. Additionally, you can reserve a name for up to 60 days for $10. This would require filling out a Name Reservation Request form and sending it by mail or dropping it off in person.
  • Make sure it is available as a web domain. This way, you can find out if another company outside of California (and therefore not on the database) has a business with the same name. In that case, think of something more original.
liability
Decreased Liability
An LLC separates your personal assets from any business decisions made or actions undertaken by the LLC.
keeping
Reduced Record Keeping
When compared to a corporation structure, an LLC has less registration paperwork and startup expenses.
profit
Sharing of Profits
LLC members might contribute different proportions of capital and sweat equity, and they must determine for themselves what percentage of the profits/losses goes to whom.

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Create a Business Website

Creating a website for your business is not a requirement but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service.

Begin Operating Your Business

Once you have finished setting up an LLC in California, make sure you keep your state of CA LLC compliant. Remember all important dates and make all necessary payments on time. If you’d rather not do these tasks yourself, you can sign up for a service that will automatically send you alerts ahead of crucial state and federal filing deadlines. Likewise, you can hire an accountant, a tax professional, and/or an attorney to ensure you are not making errors when keeping records, filling out paperwork, and making payments.

You can begin operating your business in California with peace of mind, knowing that you are protected by an LLC in case anything unforeseeable affects your new business venture.

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Begin Operating Your Business

Once you become an LLC, make sure you keep your LLC compliant. Remember to file an annual report and keep up with your quarterly tax payments. if you’d rather not do these tasks yourself, you can sign up for a service that will automatically send you alerts ahead of crucial state and federal filing deadlines.