If you have a business partner or employees, you probably already know that forming a limited liability company (LLC) in California would protect you from personal liability for your co-owners’ or employees’ actions.
Some companies hire LLC formation services to form LLC hassle-free. We reviewed IncFile and a few more of those here. We recommend reading them all separately, including the Rocket Lawyer, or Zen Business, we reviewed here.
But if you and your business co-owners decided to do everything yourselves and are getting overwhelmed by all the legalities the California Secretary of State is requiring, don't be.
Starting an LLC is actually pretty easy, as you can, for example see in our Wisconsin LLC forming review here, or LLC in Colorado State in this post. You just need to follow several steps, take a day or two for filing a form at the California Secretary of State, and pay the filing fee. In addition, we explained how to start an LLC in Pennsylvania in this guide,and LLC forming in Illinois here. We also give you a peak at Maryland state LLC forming, Ohio state LLC and nearby North Carolina state LLC.
Types of LLCs in California
In California, there are any only two type types of LLC (limited liability company):
- Business LLC in California– This is the most common one available for business entities. It can be made of multiple members or formed in California as a single-member LLC.
- Foreign LLC in California – For businesses already existing in another location, but is expanding or opening a branch in California are required to form a foreign LLC instead. ·
Others states have Professional LLC exclusively for professionals who may want to form their own business. Like other LLCs, a Professional LLC would keep professionals from becoming liable to the actions of his/her employees or partners.
However, in California, professionals are not allowed to obtain a Professional LLC. Instead, if it is really necessary to build a business entity as a professional, the California Secretary of State recommends you open a corporation instead.
6 Steps to Form a California Limited Liability company
How do I start an LLC in California? Just follow these steps:
1. Pick a Business Name
Forming an LLC begins with choosing a name for your business that has not yet been used by other businesses. The name must be original, distinct, and something that would define your business.
LLC name cannot include the terms “Division,” “Board,” “Commission,” “Agency,” “Department, “Municipal,” and other similar terms.
Search through the CA Secretary of State website to check if the LLCs name you want is available.
2. Assign a Business Address
California LLCs must have a business address, even if it is outside the state. However, it cannot be a PO box, since official mail from the California Secretary of State, documents, or even service of process must reach the LLC members.
3. Assign a Registered Agent or Agent for Service of Process
California LLCs must all have a registered agent. In California, this position is called “agent for service of process.” He/she receives official legal and tax correspondence on behalf of your California LLC.
This registered agent can be a person you trust (friend or family) based in California. You can even fill the position of the registered agent, as long as you have a physical street address in the state. However, whoever is assigned as a registered agent will be making his/her address public, which is why it isn't recommended for the business owners themselves to serve this position.
A California Registered Agent must also be available during business hours to receive tax correspondence from the California Secretary of State.
If you cannot be your own LLC's California registered agent, or have no one to serve this position, you can always pay for a registered agent service (a third-party company) to handle official mail on behalf of your LLC.
4. File Forms and Pay Fees
Once you’ve decided that you won’t be hiring any LLC creation professional services, picked a name, and assigned a registered agent, it’s time to prepare all the forms needed in forming your LLC.
You must file two kinds of forms and settle their respective fees to form your California LLC.
Submit the Articles of Organization Form
The most important document you need to form an LLC is called Articles of Organization. It is submitted either by mail or in-person with the California Secretary of State. It is submitted only ONCE at the beginning when forming an LLC.
- Download Form LLC 1 and fill it out with your local or foreign LLC name, address, complete information of your Agent for Service of Process, LLC management structure, and other details.
- California LLCs are required to pay a filing fee of $75 for the Articles of Organization.
- This fee could be waived if you hired a registered agent service to handle the entire process of forming an LLC on your behalf.
- If you want to submit your California Articles of Organization form online, you may do so here: CA Secretary of State website.
- If you wish to file your California Articles of Organization by mail, address it to “Secretary of State, Business Entities Filings” P.O. Box 944228 Sacramento, CA 94244
- If you prefer to submit in person, you need to file the Articles of Organization with the California Secretary of State at 1500 11th St. Sacramento, CA 95814 any day from Mondays through Fridays (8 am to 5 pm). This method requires an extra $15 drop-off fee, which also prioritizes your document over mailed-in forms.
Submit Statement of Information (SOI) form
All California LLC businesses should make sure to file the initial statement of information (aka Annual Report) within 90 days after their respective LLC formation date. The Statement of Information form LLCs must submit includes information, such as the company's owners/members/officers, business address(es), and business description.
- You must file a Statement of Information form biennially (every two years). This ensures you keep your business information up-to-date.
- To file form LLC 12, you must pay a $20 filing fee every time.
Pay California Franchise Tax
Any California business operating in the state is required to pay California Franchise Tax to the State of California Franchise Tax Board.
- Form 3522 (or LLC Tax Voucher) - Any business in California must use this form to settle the LLC franchise tax.
- Franchise tax fee: a minimum of $800
- Frequency: This first payment is within 90 days to 120 days after you officially form an LLC. The succeeding franchise tax fees must be paid every year after your first payment.
5.Get an EIN (Employer Identification Number)
The Internal Revenue Service requires all California LLC entities to have an employer identification number (EIN). Just like individuals use their social security number in paying taxes, seeking loans, and using other financial activities, an LLC uses EIN to keep track of sales tax and settle the taxable year.
To apply for an EIN, you must fill out this form and follow the instructions.
6. Create a California LLC Operating Agreement
An LLC Operating Agreement is a document that states how you (and/or your partners) plan to run your business.
In an operating agreement, this is where you’ll put in writing details like profit division among members, steps your LLC will make should any member decide to leave, who makes major decisions, and so on.
California requires any LLC to create and keep an operating agreement, even if it isn’t really needed to be sent to the Secretary of State.
California LLC FAQs
What else does an LLC need to operate?
Like any kind of business entity, your LLC would need the following:
Not all LLCs would require a business license/permit. It all depends on what your company's industry is in and where in California your business is located.
For instance, on top of all the LLC steps above, Los Angeles-based businesses must also register the business at the Los Angeles Office of Finance. Plus obtain a Business Tax Certificate.
If you're in the food industry, you might need to apply for a health permit, obtain certain food safety certifications, or get a fire department permit (among others) to operate.
To be sure which permits you might need, use the official California tool called CalGold by entering your city, country, and business type. Use "General Business Information" if you are unable to find your business type.
LLC Bank account
When you wish to open a business bank account for your CA LLC, you need a copy of the:
- Articles of Organization approved by the California Secretary of State
- Employer Identification number
- Copy of Operating Agreement signed by all LLC members - Not all banks require this, but some may ask for it.
Certificate of good standing
This certificate (also known as Certificate of Status or Certificate of Existence) is proof that your business entity is registered to operate in the state, complies with LLC requirements, and hasn't been suspended by the Franchise Tax Board.
You may need this certificate if you're buying or selling a company, involved in an acquisition/merger, applying for a business loan, or if you need to register a new business in another state.
You can fill out this form and request this certificate at the Secretary of State s office.
How much does it cost to start an LLC in California?
All in, you should prepare at least $1000 for the entire process.
- The CA Secretary of State charges a $70 fee when filing the articles of organization.
- Name reservation costs $10, whether you apply in person or by mail.
- The fee of your biennial report is $20.
- EINs are available for free as long as you obtain one right after the formation of your LLC. If you get one after 12 months, you might need to pay a late fee of $18 per member per month delayed.
- The fee to file the statement of information in California is $20. Additionally, California imposes a minimum franchise tax of at least $800.
How fast can I form an LLC in California?
In California, the processing of your LLC application could take 15 to 20 days. However, for an added fee ranging from $250 to $500, you can have it expedited and completed in 1 to 10 days.
What should you do to maintain a California LLC?
To maintain your California LLC, you need to pay your taxes, keep business info up-to-date, and renew any license/permit. Note that if your LLC earns over $250,000 in gross income, you'd need to pay California LLC fee ranging from $900 to $11,790.