How to Start an LLC in California (CA)

How-to-start-an-LLC-in-California

A Step-by-Step Guide to California LLC Formation

As an owner, determining the best business structure is one of the most crucial steps in starting your company. There are so many different options available, each with its advantages and disadvantages, making it challenging to pinpoint the best for you.

One of which, a Limited Liability Company (LLC), is an excellent choice that is known for being a safe yet flexible business structure for small businesses.

If you are looking to find out more information about business formations, namely LLC, you’ve come to the right place.

For business owners looking to form an LLC, this article will discuss the details of exactly how to start an LLC in California.

Benefits of Forming an LLC in California

When you file your company as an LLC in California, it helps solidify your standing in the business world. This motion shows other businesses and potential customers that you are willing to do what it takes to be a legally operating business. 

Choosing to form your business as an LLC in California allows you to take advantage of the benefits of both a corporation and a partnership structure. Some of these benefits include:

Protection of Personal Assets

The LLC will have its liability that does not automatically extend to the owners, unlike a sole proprietor, where you are legally responsible for everything. That means the California LLC protects the liabilities and debts incurred from the business. In most situations, your assets, such as your car, home, or savings, will never be at risk if your California LLC is faced with lawsuits or bankruptcy.

Business Profit Taxation

In an LLC in California, your profits and losses can pass through to your income without having to have corporate taxation.

Simple to Create and Maintain

The formation of a California LLC requires minimal paperwork and requirements. They are known for being easy to start and simple to maintain.

Minimal Restrictions

Your business matters can be managed by more than one owner or member while still being one main business to the public. This means all decisions and transactions behind the scenes can be equitably distributed while presenting one entity as you move forward.

Heightens Credibility

As you move forward, your California LLC will continuously be recognized as an entity. People and other businesses prefer doing business with a legitimate entity because it shows your level of professionalism.

Access to Business Loans

When you form your California LLC, you will obtain a DUNS number and build your business credit, helping you to further build upon your business.

Flexible Profit Distribution

In an LLC, you are not required to spread the distribution of profits equally across the owners. You have full control over profit distribution in your California LLC.

Good For

An LLC business structure in California is an excellent choice for both medium and higher-risk level businesses. You might always want to consider opting to go with an LLC if you have a significant amount of personal assets to protect from your company. And lastly, LLCs are great for owners who are interested in paying lower tax rates than corporations.

How to Start an LLC in California

How-to-start-an-LLC-in-CA
How to start and LLC in CA

Suppose you have decided to move forward with forming a California LLC for your business. In that case, you will need to follow these steps to be successful in abiding by California LLC law.

Suppose you have decided to move forward with forming a California LLC for your business. In that case, you will need to follow these steps to be successful in abiding by California LLC law.

1. Name LLC

Every state has different rules regarding business names that you will want to find out more information on once you have selected the state of your business address. 

Name Requirements

To abide by California LLC law, you must meet the following requirements while naming your business:

  • Name must end with Limited Liability Company, LLC, or L.L.C.
  • Limited can be abbreviated to Ltd.
  • Company can be abbreviated to Co.
  • It cannot contain any of the following words:
    • Trust
    • Trustee
    • Bank
    • Corporation
    • Corp.
    • Incorporated
    • Inc.
    • Insurer
    • Insurance company
    • Any other words suggestive of the insurance business

Additional resources are available online regarding name regulations and requirements for LLC formation in California from the Secretary of State’s Business Programs Division’s Business Entity Name Regulations & Additional Statutory Requirements and Restrictions publication.

Check Name Availability

In choosing a name for your business in California, you will need to search it on the internet to see if it is already in use. Keep in mind there are potential legal consequences for using a similar name to an already existing business in California.

After you have done a general search online, you can check your business’s potential name through the California Secretary of State records through the online Business Search.

Reserve Name

Once you have confirmed the name is available through the California Secretary of State Business Search, you can move forward with three options to secure it for your business.

Your first option is to place a Name Reservation Request Form. Once completed, you can either hand deliver or mail the form to the California Secretary of State’s office.

This reservation is suitable for 60 days, holding your business name until you can complete and submit the paperwork.

2. Choose a California Agent for Service of Process

A person, or separate business, that receives and sends legal documents on behalf of your company is known as a registered agent in other states. In California, this is an agent for service of process. California requires all LLCs to appoint an agent for service of process. 

The agent must live in California and provide a street address (not P.O. box) listed within the LLC’s articles of organization. The agent is allowed to be a manager, member, or officer of your LLC but does not have to be affiliated with it. To accept the appointment as this position, they must sign a statement of acceptance which becomes the statutory agent acceptance form. 

You can also choose to hire a registered agent to act as your agent for the service process at cost. Reference the California Secretary of State’s list of Private Service Companies, regularly updated to find one near you.

3. File California LLC Articles of Organization

You will need to submit all of your formation documentation to the California Secretary of State’s office. To form a California LLC, you will need to complete the Articles of Organization paperwork. You can submit this via their online services or by hand delivery or mail.

The information included in your paperwork must consist of the following:

  • Name of your LLC
  • Purpose of your LLC
  • How your LLC will be managed
  • The physical address of your LLC
  • Name and address of your registered agent

The filing fee associated with the Article of Organization for an LLC is $70.

Expedited Filing

If you hand-deliver your paperwork to the Sacramento Secretary of State’s office, you can opt for expedited filing options for an additional fee. To do so, you will have to deliver in person at the public counter located at:

  • 1500 11th Street, Room 390, Sacramento, CA 95814
  • Regular business hours: Monday through Friday 8:00 am – 5:00 pm, excluding state holidays

Your options for expedited filing services include the following:

  • 4-hour filling for $500
  • Same-day for $750
  • 24-hour for $350

Certain restrictions and requirements apply to expedited filing services, including pre clearances and approvals for some. You can find out more information from the California Secretary of State Business Programs Business Entities Preclearance and Expedited Filing Services page.

4. Create an LLC Operating Agreement

If your LLC has two or more members, it should have an operating agreement. Although it’s not required to form your LLC in the state of California, it is highly recommended because it will outline how the business is structured and will operate among the members.

Some of the sections you will typically find covered in an operating agreement include:

  • Organization
  • Management
  • Voting
  • Capital distributions
  • Distributions
  • Dissolution

5. Create an EIN

The Employer Identification Number (EIN), also known as your Tax ID Number, comes from the Internal Revenue Service (IRS) and is an identifier for your business. It consists of a unique nine-digit number and is imperative for a business. The EIN legally allows you to:

  • Open a bank account
  • Apply for a business licenses
  • File your tax returns

6. File Statement of Information

After you submit your LLC paperwork, you have 90 days to file a Statement of Information to the California Secretary of State. Following this initial submission, you will have to file this same Statement of Information every two years. 

You can either file the Statement of Information online through the Secretary of State online portal or print it out and hand-deliver it to their offices. Either method you choose, you will be charged a $20 filing fee.

Included in your Statement of Information you must have:

  • Name of your LLC
  • California Secretary of State file number
  • Name and address of your LLC’s agent for service of process
  • Street address of your LLC’s office
  • Mailing address, if different, of your LLC’s office
  • Name(s) and address(es) of any managers, chief executive officers, or members
  • Valid email address for your LLC
  • General business type of your LLC

7. Pay Your Taxes 

Any LLC in California is required to pay taxes to the California Franchise Tax Board (FTB) if you fall under either of these categories:

  • Registered in California
  • Organized in California
  • Conduct business in California
  • Did not elect corporation taxation

Annual Minimum

The minimum required franchise tax in California is $800, which is submitted to the Franchise Tax Board using the Limited Liability Company Tax Voucher (Form 3522).

Additional Tax

If your LLC has a net income greater than $250,000, you will pay additional fees based on the total revenue.

One-Year Exemption

If you form your California LLC in 2021, 2022, or 2023, you are eligible for a one-year exemption for your first taxable year from the $800 minimum annual franchise tax. California put this exemption in place to help ease the burden of forming a business in the state.

Filing Procedure

Every California LLC must file the Limited Liability Company Return of Income (Form 568) by the 15th day of the 4th month after the closure of your taxable year (typically April 15th). Additional resources are available online through the State of California Franchise Tax Board’s Limited Liability Company page.

8. Licenses and Additional Taxes

There are different business license regulations based on what type of business your LLC does and its location. There might be other local or state businesses required, which you can find out more information about on the California Office of Business and Economic Development’s CalGold website.

You might also have to register with additional California taxing authorities. Here are a few examples you might find:

9. Business Account

Lastly, you will need to open up a business bank account through your approved bank or credit union.

10. Purchase Domain

Once you have chosen a unique name for your business, you can go ahead and purchase a domain name that matches your business entity.

Apply for a California LLC Online

You have a few options when creating and registering your LLC. You can do it yourself (DIY) or use an online website that incorporates. You can easily apply for an LLC online. You have the option to do it yourself with the Secretary of State or use an online company to do it for you.

California Secretary of State

To form a California LLC, you will need to complete the Articles of Organization. You will need to submit all of the completed documentation through their online services or by hand delivery or mail.

Online Companies

If you are looking for assistance online, there are plenty of options out there for you. Some of the more prevalent business formation online service providers include:

ZenBusiness

zenbusiness website

ZenBusiness built its platform to meet the needs of your business throughout its lifetime. When you pay for their services, you’ll receive a personalized dashboard to your business to store documents, receive alerts, and manage your website.

ZenBusiness charges based on a tier system. There are three different tiers with pricing as follows:

  • The Starter = $49 annually
  • The Pro = $199 annually
  • The Premium = $299 annually

Read our full ZenBusiness review

IncFile

IncFile-Review-ScreenShot

IncFile provides you with a full suite offering startup services to best support your business formation.

Their pricing model also depends on the state you are filling. You can generate a personalized quote on their website by entering in the necessary information of your business.

Read our full IncFile review

Legal Zoom

legalzoom homepage

LegalZoom is an online legal service provider that helps you to be able to create legal documents without having to pay the expensive lawyer fees. Some of the services they provide assistance to include business formation, copyrights, and trademarks.

LegalZoom has many different pricing options available. For their LLC service, pricing begins at $79 + the allotted state fee.

Read our full LegalZoom review

After Starting an LLC

Once you’ve started the process of forming your LLC, there are a few other pieces of business to handle. Make sure to keep in mind these following things and make sure you take care of them accordingly:

  • Set up taxes
  • Set up unemployment insurance
  • Decide who handles your accounting
  • Acquire permits
  • Determine insurance policies
  • Double-check California law around hiring
  • Open a bank account
  • Apply for business licenses

Although you have followed the steps to creating your LLC, the job is not done. Following these additional steps will ensure the safety and security in the setup of your business.

Conclusion

Don’t go it alone. It’s easy to make mistakes when getting your business off the ground. Using an LLC formation service such as ZenBusiness as your go-to business solution will make things easy. From filing your documents to getting the advice you need to move forward, ZenBusiness is there every step of the way.

Once you’ve completed your LLC filing through the California Secretary of State and received your Certificate of Status via an online formation service.

What’s next? You’ll need to figure out your brand voice and how you want to speak to your audience, create a logo, colors, branding, website, phone number, and how you will get the word out to the public.

If you’re in it for the long haul, trademarking your name should be on the list. Finally, once all the moving parts are in place, it’s time to schedule your launch. This could entail having a pre-sale or something different, but it’s always best to create a schedule and stick to it.

FAQ

How Much Does It Cost to Start an LLC in California?

Forming an LLC in California will cost $70 paid directly to the California Secretary of State. This fee is associated with filing the Articles of Organization as required by the state.

How Long Does It Take to Form an LLC in California?

The California Secretary of State will take 3-5 business days to process the documents you submitted. The peak filing season is known to be from December through January. During this time, your approval may take 6-7 business days.

Can You Start a LLC on Your Own?

Yes, you can start forming an LLC on your own by following the step-by-step instructions provided in this article. For additional help, seek resources from online tools or by hiring a lawyer.

Do You Need a Lawyer to Start an LLC

No. You do not need a lawyer to start an LLC. It is entirely legal for you to prepare and file the necessary documents on your own. You can also utilize online business formation services, like those listed in this article, with ZenBusiness at the top of the list.

Does an LLC Need to Make Money

LLCs are not required to have income or post any profits. Keep in mind that if an LLC business owner is claiming tax deductions without reporting income, this will likely flag the IRS to conduct an audit to determine if the LLC has been set up for the right reasons.

What Is the Downside to an LLC?

While LLCs reap the benefits of partnerships and corporations, there are some downsides to consider before forming one of your own. LLCs members are deemed self-employed and must pay self-employment tax contributions towards both Medicare and Social Security.

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