Limited liability companies (LLCs) are very popular among small business owner all over California as they’re affordable and easy to form. As with other states, the State of California has some specific requirements that are idiosyncratic.
Those who wish to form an LLC must register with the Secretary of State by filing the necessary forms, paying necessary fees, and meeting all the naming and formation requirements set by the State. Unlike some other states though, California does not require LLCs to publicize their Articles of Organization in a newspaper to finalize the LLC formation status.
To start an LLC in California, you will need to file your Articles of Organization with the California Secretary of State, which will cost you $70 if you do it online. Other than applying online, you can also choose to do it in-person at their office, by mail, or by fax. The Articles of Organization is the legal document that officially creates your California Limited Liability Company.
If you’re planning to form a California LLC today, you can follow the step-by-step guide below to help you get your business up and running.
Steps In Starting an LLC in California in 2022
Step 1: Name Your California LLC
An important step of forming an LLC is to choose a company name that complies with California naming requirements. It also needs to be easily searchable by potential clients. Here are a few guidelines you need to follow when choosing a company name:
1. Follow the naming guidelines for a California LLC:
- To form a California LLC, you must choose a name that’s unique and it cannot be too similar to an existing name registered in the California Secretary of State records, and cannot be misleading to the public.
- You can check for name availability on the Secretary of State’s business name database and an available name can be reserved for up to 60 days by filing a Name Reservation Request form which can be postal mailed or hand-delivered to the Secretary of State’s office.
- Your company name must include the phrase “limited liability company”, or one of its abbreviations or words: “LLC, L.L.C., Limited, Ltd., Company or Co.”
- Your name cannot include words that could confuse your LLC with a government agency such as FBI, Treasury, State of Department, etc.).
- Restricted words such as Bank, Attorney, University may require additional paperwork and a licensed individual, such as a doctor or a lawyer, to be part of your LLC formation.
You can read California’s Code of Regulations for a complete list of naming rules in California,
2. Is the name available in California?
The next thing you want to check is to make sure the name you want isn’t already taken by someone else. You can do this by doing a name search on the State of California website.
3. Is the URL available?
In a world of internet banking and online transactions, having an online presence may most likely have a big impact on your business. We recommend that you check online to see if your business name is available as a web domain. Even if you don’t plan to create a business website anytime soon, you may want to consider buying the URL to prevent others from acquiring it.
After registering a domain name, you can also consider setting up a professional email account (@yourcompany.coom).
FAQ [Naming a California LLC]
What is an LLC?
LLC is short for Limited Liability Company. LLC is a simple business structure that offers business owners more flexibility compared to a traditional corporation while still providing many of the same benefits.
Do I need to get a DBA or Trade Name for my business?
Most LLCs do not need a DBA since the name of the LLC can already serve as your company’s brand name and you can even accept checks and other payments under that name as well. However, you may also wish to register a DBA if you would like to conduct business under another name.
Step 2: Choose a Registered Agent in California
You are required to appoint a California Agent for Service of Process when forming an LLC in California. An Agent for Service of Process is also more commonly known as a Registered Agent in other states.
An Agent of Service of Process is a person or business entity who is responsible for receiving important tax forms, legal documents, a notice of lawsuits, and official government correspondence on behalf of your business. You can simply think of your registered agent as your business’s point of contact with the state.
A California LLC may not serve as its own agent for service of process. The agent should agree to accept service of process on behalf of the LLC prior to designation. However, the agent may be a member, manager, or officer of the LLC, but doesn’t need to be affiliated with the LLC.
There are also a few guidelines that you will need to follow on who you can appoint as the Agent of Service Of Process. An Agent of Service of Process must be a full-time resident of California or a corporation authorized to conduct business in the state of California. You may also elect an individual within the company including yourself to be your LLC’s agent of service of process.
The Secretary of State also maintains a list of private service companies (commercial registered agents) that will act as agents for service of process for a fee.
Step 3: File Your California LLC Articles of Organization
To register your California LLC, you’ll need to file your Articles of Organization with the California Secretary of State. The articles must include your California LLC name, its purpose, information on how it will be managed, its address, and the name and address of its registered agent.
You can choose to apply for the Form LLC-1 online, by mail, or in person. Now is also a good time for you to determine whether your LLC will be member-managed or manager-managed.
Most small multi-member LLCs choose to be managed directly by their members, but LLCs have the option to appoint a manager or a small group of managers to take on the management role in the LLC – somewhat like a board of directors that oversee a corporation. Managers can vote on key issues such as taking out a loan, purchasing real estate, or changing strategic plans.
State Filing Cost is $70 online or by mail. The payment is also non-refundable.
Secretary of State
Business Entities Filings
P.O. Box 944228
Sacramento, CA 94244
1500 11th St. (3rd floor)
Sacramento, CA 96814
Mon – Fri 8am to 5pm
Note (if filing in person): Articles that are filed in person at the Secretary of State Office in Sacramento are subject to an additional $15 counter drop-off fee. This will provide priority processing over applications submitted by mail.
If you have already established an LLC and are looking to expand your existing company to the State of California, you’ll need to form a Foreign LLC instead.
FAQ [Filing California LLC Documents]
What is the processing time to form my LLC in California?
The processing time will depend on your application method. However, you can expect approximately 5 business days if you apply online or by mail. You can also choose to have it expedited for an additional fee.
4-Hour – $500.00
Same Day – $750.00
24-Hour – $350.00
What is the difference between a domestic California LLC and a foreign LLC?
An LLC is commonly referred to as a “domestic LLC” when it conducts business in the same state where it was formed. A foreign LLC must be formed when an existing LLC wishes to expand its business to another state.
Step 4: File the Initial Statement of Information
All California LLCs are required to file an Initial Statement of Information (Form LLC-12) with the California Secretary of State. And you need to do this within 90 days of forming your LLC. Again, this step can be done online, in-person, or by mail.
Filing the Initial Statement of Information will be subjected to a non-refundable fee of $20.
Secretary of State, Statement of Information Unit
P.O. Box 944230
Sacramento, CA 94244
California Secretary of State Sacramento Office
1500 11th St.
Sacramento, CA 96814
Mon – Fri 8am to 5pm
Step 5: Create a California LLC Operating Agreement
All LLCs formed in California will require an operating agreement. An operating agreement is a legal document that outlines the ownership and operating procedures of the said LLC. Having operating agreements is important as the comprehensive agreement will ensure all business owner are on the same page and it helps to reduce the risk of future conflict.
FAQ [Creating a California LLC Operating Agreement]
Do I need to file my operating agreement with the State of California?
No, the operating agreement is an internal document that you should keep on file for future references, such as when a conflict arises. However, many states do legally require LLCs to have an operating agreement in place.
Step 6: Get an EIN for your California LLC
An Employer Identification Number (EIN) is also known as the Federal Employer Identification Number (FEIN), or Federal Tax Identification Number (FTIN). This is a nine-digit number issued by the Internal Revenue System (IRS); an Employer ID Number is used to identify a business entity and keep track of all the business’ tax reporting. It can essentially be considered as a Social Security number (SSN) for the company.
You may wonder why you need an EIN. An EIN number is required for the following:
- To open a business bank account for the company
- For Federal and State tax purposes
- To hire employees for the company
An EIN can be obtained from the IRS free of charge by any of the business owners after forming the company. This process can also be done online or by mail.
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
FAQ [Getting an EIN]
Can I get an EIN if I don’t have a Social Security number?
Yes, you can still get an EIN without a Social Security number. An SSN is not required to get an EIN. You can simply fill out the IRS Form SS-4 and leave section 7b blank. Then give the IRS a call at 267-941-1099 to complete your EIN application.
What tax structure should I choose for my LLC?
When you obtain an EIN, you will be informed of the different tax classification options available for your company. Most LLCs elect the default tax status. However, some LLCs can reduce their federal tax obligation by choosing the S corporation status. For this, we recommend consulting with a local accountant to find out which option is the best for you.
Do I need an EIN for my LLC?
All LLCs with employees, or any LLC with more than one member, must have an EIN. This is a requirement by the IRS.
Important Steps After Forming your LLC in California
Separate Your Personal and Business Assets
Your personal assets like your home, car, and other valuables are at risk in the event your California LLC gets sued if your personal and business accounts are mixed. In business law, this is often referred to as piercing the corporate veil. Here are a few steps you can take to protect your California LLC.
1. Opening a business bank account
This is an important step as it will separate your personal assets from your company’s assets, which is necessary for personal asset protection. It also makes accounting and tax filing easier.
2. Getting a business credit card
This is also a good habit to practice as it helps you separate personal and business expenses. This can also be used to build your company’s credit history, which can be useful to raise capital.
3. Hiring a business accountant
Yes, you certainly can handle your business books yourself. However, it is also a good idea to consider hiring a business accountant as they are experts in this field. They will help prevent your business from overpaying on taxes while helping you avoid penalties, fines, and other costly tax errors that you might miss out on.
Getting an accountant also makes bookkeeping and payroll easier, leaving you with more time to focus on plans and strategies to grow your business. They can also help you manage your business funding more effectively such as discovering areas of unforeseen loss or extra profit.
Get Business Insurance for your LLC
Getting business insurance is just as important as getting personal insurance. Business insurance helps you manage risk and focus on growing your LLC. The most common types of business insurance available include:
General Liability Insurance – This is a pretty broad insurance policy that protects your business from lawsuits. Most small businesses will get general liability insurance.
Professional Liability Insurance – This is an insurance that’s catered for professional service providers such as consultants, accountants, etc that covers claims of malpractice and other business errors.
Workers’ Compensation Insurance – This is a type of insurance that provides coverage for employees’ job-related illnesses, injuries, or deaths.
Create Your Website
In a world of digitalization, creating a website is a big step in legitimizing your business. Almost every business will need a website. Even if you think that your business is too small or you’re focused on an offline industry, you could be potentially missing out on a large percentage of customers and revenue simply because you don’t have a website.
Some business owner may fear that creating a business website is out of their reach since they do not have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that make the life of small business owner much simpler!
Here are a few main reasons why you should seriously consider building your own business website:
- All legitimate businesses have websites. The size or industry of your business does not matter when it comes to setting up your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles simply do not act as a replacement for a complete business website that you own and control.
- There are many website builder tools online like GoDaddy Website Builder that have made it their mission to create a website extremely simple. With this, you don’t even need to worry about hiring a web developer or designer just to create a website you can be proud of.
Send Out a Press Release
Though it’s not a requirement in the California Secretary of State to form your limited liability company, press releases are among the easiest and best ways to promote your business. They’re also one of the most cost-effective strategies that provide the following benefits:
- Provides publicity
- Establish your brand presence on the web
- Improves your website’s SEO, thus driving more customers to your website
- A one-time cost in terms of effort and money
- Have long-lasting benefits
Keep Your Company Compliant
California Business Permits & Licenses
Do I need business licenses and permits?
To operate your limited liability company in California you must comply with federal, state, and local government regulations. For example, if you own a restaurant you will likely need health permits, building permits, signage permits, etc before opening for business.
The details of business licenses and permits will vary from state to state. So you need to make sure to read carefully. Don’t be surprised if there are short classes required as well. Fees for various business licenses and permits will vary depending on what sort of license you are seeking to obtain.
Below are a few methods or easy ways you can obtain necessary California business licenses and permits for your limited liability company. Alternatively, you can also hire a professional service to do it for you.
- Federal: Use the U.S. Small Business Administration (SBA) guide to get federal business licenses and permits.
- State: Apply for or learn more about licenses, permits, and registration with the State of California’s CalGold website.
- Local: Contact your local county clerk and ask about local business licenses and permits.
It is recommended for first-time entrepreneurs to consider having professional service research your business’s licensing requirements.
California LLC Tax Filing Requirements
Depending on the nature of your business, you may be required to register for one or more forms of state tax. Here are the types of tax that you may encounter:
If you’re selling a physical product, you’ll typically need to register for a seller’s permit through the state of California’s website. This certificate will allow your business to collect sales tax on taxable sales.
Sales tax is also known as “Sales and Use Tax” is a tax levied by states, counties, and municipalities on business transactions that involve the exchange of certain taxable goods or services.
If your business involves hiring employees, you will need to register for California Employer Taxes, which include Employee Withholding Tax, Unemployment Insurance Tax, and Disability Insurance through the California Payroll website.
FAQ [Additional Business Taxes]
What is the California Franchise Tax?
The California Franchise Tax is a tax for each limited liability company formed in the state of California and will vary depending on your LLC’s income.
Federal LLC Tax Filing Requirements
Most, if not all limited liability company in California will need to report their income to the IRS each year using the following forms:
- Form 1065 Partnership Return (most multi-member LLCs use this form)
- Form 1040 Schedule C (most single-member LLCs use this form)
Just to note, how you decide to pay yourself as the company owner will also play an important role in your federal taxes.
California Biennial Report & Franchise Tax
Having an LLC in California will require you to file a biennial report, also known as the State of Information, with the California Secretary of State. This form must be submitted on paper, by mail, or in-person (drop off).
The Statement of Information must include:
- The LLC’s name and Secretary of State file number
- The name and address of the LLC’s agent for service of process
- Street address of LLC’s principal executive office
- LLC’s mailing address is different from their principal executive office
- Name and complete business or residence addresses of any manager or managers and chief executive officer (if any). If no manager has been elected, then to fill in the name and business or residence address of each LLC member
- A valid email address if the LC chooses to receive renewal notices and other notifications by electronic mail instead of the United States mail, and
- The general type of business operation that is the LLC’s principal business activity
There are a few options you can adopt to file your biennial report.
Option 1: File Online with the California Secretary of State
Option 2A: File form LLC-12NC by mail or in-person if none of your business information has changed
Option 2B: File form LLC-21 by mail or in-person if some of your business information has changed
A $20 non-refundable fee will need to be paid for each biennial statement. Submitting your biennial statement also has a due date, which is every second year by the end of the month in which your LLC in California was formed. The California Secretary of State will charge a $250 penalty fee for failure to file on time.
Other than that, California LLC is also required to pay an annual Franchise tax which you can also do online or by mail.
Option 1: File and pay your Franchise Tax online through the California Franchise Tax Board
Option 2: File and pay your Franchise Tax by mail through the California Franchise Tax Board
You can also choose to pay by mail by making a check or money order payable to the “Franchise Tax Board” along with the Estimated Fee Form.
The Franchise Tax application is free and you can mail it to:
Franchise Tax Board
P.O. Box 942857
Sacramento, CA 94257
$800 for LLCs with an annual revenue < $250,000 $800 + Estimated Fee for LLCs with annual revenue > $250,000
If you have an limited liability company in California and plan on hiring employees, you need to stay compliant with the law by following these steps:
- Verify that new employees are able to work in the US with a valid working pass
- Report employees as “new hires” to the State
- Provide workers’ compensation insurance for employees
- Withhold employee taxes
- Print compliance posters and place them in visible areas of your workspace
FAQ [Hiring Employees]
What is the minimum wage in California?
The statewide minimum wage in California is $14.00 per hour for employers with 26 or more employees. California LLC with 25 or fewer employees has a lower minimum wage of $13.00 per hour.
How often do I need to pay employees?
In California, employee wages are required to be paid at least twice during each calendar month on days designated as regular paydays by the employer.
Avoid Automatic Dissolution
California LLC may face fines and even automatic dissolution if they miss one or more state filings. When this happens, the LLC owners risk the loss of limited liability protection. This is where a quality registered agent service can help LLC in California to prevent this outcome by notifying you of upcoming filing deadlines and even submitting the necessary reports on your behalf for an additional fee.
Other Frequently Asked Questions (FAQs)
Should I form an LLC?
If you’re just started your business or have been operating as a sole proprietor, you should consider starting an LLC. LLCs limit an owner’s personal liability for business debts and lawsuits and offer a lot of flexibility when it comes to business ownership, management, and taxation.
How do I know if my LLC name is available?
LLCs in California need to have a unique name that is distinguishable from the names of other existing businesses on file. You can conduct a name search for free on the California SOS website to make sure your proposed name is still available.
How much does LLC formation cost in California?
The Secretary of State charges a $70 filing fee for the article of organization. It will cost $10 to file a name reservation application by mail or in person. If you do submit the reservation form in person, you will also need to pay an additional $10 handling fee.
The California SoS also requires a biennial report to be filed on behalf of every registered LLC 90 days after the LLC formation and every two years thereafter with a filing fee of $20.
Filing these documents on your own is often the cheapest option, but completing all of the forms and filing them yourself can quickly get complicated. Hiring a lawyer is another option but that will cost you hundreds, if not thousands of dollars in the process. Another option is to hire a registered agent service to help you with all the paperwork and filings for you.
Do I need an operating agreement for California LLCs?
California state does not require LLCs to have operating agreements, but it is highly advisable to have one as the operating agreement will help protect your limited liability status, prevent financial and managerial misunderstandings, and ensure that you decide on the rules governing your business instead of state law.
Can a foreign LLC do business in California?
All LLCs organized outside of the California State must register with the California SoS to conduct business in California.
Can I form a single-member LLC in California?
For most formation purposes, a California single-member LLC is considered the same as a multi-member LLC with the same steps required to start an LLC as those listed above.
How do I dissolve an LLC when I’m done?
If you reach a point where it is time to close your business and cease all operations, then you will want to properly dissolve your LLC to limit your liability for lawsuits and government fees.
Can I be my own Registered Agent?
Yes, You or anyone else in your company can serve as the registered agent for your LLC. However, there are also other requirements that you will need to meet.
Starting a business correctly doesn’t have to be difficult. With over 15 years of experience consulting new businesses and start ups, Matthew is probably the best person to help you set a strong foundation for your business.