Do you need to start a business in California? If so, you are probably wondering how to do this. Even though there is no general requirement for starting a legal business entity in California, we recommend you consider organizing your business as an LLC (Limited Liability Company) and start an LLC in California.
A California LLC provides a high level of legal protection for your personal assets, making it a great choice if you want to start your business in the Golden State.
An LLC in California allows you to separate your personal and business assets, providing a shield against the liability of your company’s debts. This means that if someone sues your company, they cannot go after your personal property as well. In some situations, this can provide you with an additional layer of protection from personal liability compared to operating as a sole proprietor.
There is an easier way to start your California LLC, and that is by using an LLC formation service. These companies can not only save you a lot of time, but they can also help you to form your company quickly, efficiently and affordably. Check our selections for the best LLC formation services and learn more about them in our reviews.
Benefits of starting an LLC in California
There are many benefits to registering your California LLC. The most important is that an LLC protects you from any liability arising from business debts and claims, so you can rest easy knowing that even if your company runs into financial difficulties, the creditors cannot come after your personal assets.
Another benefit of starting an LLC in California is related to taxes. By organizing your company as an LLC, you can avoid double taxation. As opposed to a C Corporation which faces double taxation (money earned by the company is taxed at the corporate rate and they are also taxed when dividends are distributed), an LLC allows its members to enjoy pass-through taxation.
California LLC Rules & Requirements
The California Secretary of State’s office is the governing body that oversees all business entities in this state. Before you begin filing any paperwork to set up your LLC, you must understand exactly what information they require. We will cover all the documentation and steps necessary for forming a California limited liability company, so continue reading to learn what you need.
Best California LLC Formation Services
An easier way to start your LLC is to use an online service. These services provide step-by-step help on how to form a legal entity, so you can set up your company quickly and easily. We have reviewed some of the best formation services available today and you can check our article to learn more about them and decide which service is best for you.
This article will provide a step-by-step guide of what you need to do in order to start your own LLC in California:
7 Steps to Starting an LLC in California
- Choose a name for your California LLC
- Choose an agent for Service of Process
- File your Articles of Organization
- File the Initial Statement of Information
- Create an Operating Agreement
- Get an EIN (Employer Identification Number)
- Biennial Reporting for your California LLC
Step 1: Choose a name for your California LLC
Choosing the right name for your LLC is no easy task, but it’s an essential part of forming your LLC. When selecting a company name, you should ensure that it complies with California rules and regulations. Your chosen LLC name must meet the following qualifications:
- The name should contain “limited liability company” or the abbreviation “LTD. CO.”
- It cannot be the same as the name of another California company.
- It cannot be misleading, offensive or of “bad character.”
- If possible, choose a name that is easy to remember. It will make your business more recognizable if people hear it being referred to by its acronym rather than its full name.
You must do a name search to see if the California company name you want is already in use in California. You can do this by checking California’s Business Entity Database. If your name is not available, check with the county clerk in all counties where your business will be located to ensure that someone else hasn’t registered the name you want.
Step 2: Choose an agent for Service of Process
After choosing a business name, you must select an agent for Service of Process. This person will receive important legal documents on behalf of your LLC. The agent can be either a relative or relative of yours, but they cannot live outside of California. The agent must be over 18 and capable of state actions.
If you need an agent, but you can’t find out, check out these LLC formation services. They will include this service for you.
Step 3: File your Articles of Organization
You must file your Articles of Organization with the California Secretary of State before starting your business. You can file your articles online or by mail. Your LLC will not be recognized as a legal business entity unless and until you receive an original filing receipt from the Secretary of State’s office.
When filing your articles, you will need to provide your business name, your California LLC’s address and the county where you want it located. You must also include the name and address of the agent for service of process for your company, as well as a statement that says that you intend to transact intrastate business or be qualified to do so.
Step 4: File the Initial Statement of Information
Once your LLC is formed, you must file an Initial Statement of Information with the California Secretary of State to provide your business with an official start date. Suppose you do not file this statement within 90 days after filing your articles. In that case, your LLC will be administratively dissolved (meaning it will no longer be legally recognized as a business entity).
You can file your Initial Statement of Information online or by mail.
Step 5: Create an Operating Agreement
An LLC operating agreement is an integral part of your California LLC. It establishes the rights, responsibilities and composition of your LLC. You must make sure that every member of your company signs this agreement to be legally valid in California. Your operating agreement must include the following information:
- Your members’ percentage interests
- The roles within your LLC
- What happens if a member decides to leave
- What will happen if your company is shut down
If you do not create an operating agreement, your LLC will be governed by the default rules in California. These rules are primarily based on state law and may not always be what you want or expect. You can turn to these company formation services to help create your Operating Agreement.
Step 6: Get an EIN (Employer Identification Number)
When your LLC is first formed, you should make sure to get an EIN. An EIN is a nine-digit number that the IRS uses to identify your company. This number will allow you to open a business bank account and deal with other companies as a business entity rather than a private individual.
How to get an EIN for your LLC in California?
You will need to file IRS Form SS-4 with the Internal Revenue Service to get an EIN. You can either fax in this form or mail it in to create your LLC from within California. You can also apply for an EIN online with the IRS.
Step 7: Biennial Reporting for your California LLC
Once you have formed your LLC, California requires that you file a Statement of Information. This statement lets the state know basic information about your LLC’s activities during this period. You will need to file this form online or mail it to the California Secretary of State within 90 days after your anniversary date.
After the initial Statement of Information, you won’t have to worry about it for two years in California since you must file a Statement of Information every other year.
California LLC Processing Time
Once you have filed all of the necessary forms to start your LLC, it can take about 3 to 4 weeks for the California Secretary of State’s office to process your paperwork. This means that once you file your articles, you won’t be able to operate until about three to four weeks after. However, expedited services are available if you would like to have your LLC formed more quickly.
As you can see, forming your own LLC is not tricky. It does require some legwork, so the best thing to do is get started right away. Once you have filed your articles, gotten an EIN and created an Operating Agreement, then you are ready to start doing business.
California LLC Frequently Asked Questions
What is the cost to start an LLC in California?
The cost of starting an LLC in California is $70.
How fast can I form an LLC in California?
An LLC can be formed in just a few days. However, your company will not officially begin doing business until three to four weeks after you have filed your articles as it takes the California Secretary of State about three to four weeks to process the necessary forms.
Do I need a business license if I have an LLC?
You may need a business license depending on where you operate your company and what you will be doing with it.
Do I need an EIN for my LLC?
Yes. Your LLC will need an EIN to open a business bank account and conduct other business activities.
Can a single-member LLC pay himself a salary?
Yes. A single-member LLC can pay himself a salary.
Can an LLC have employees?
Yes. An LLC can have an unlimited number of employees.
Is a single-member LLC bad?
A single-member LLC can be beneficial if you want to keep your personal assets separate from the company. However, a multi-member LLC will have more protection under state and federal laws.
Do you have to pay the $800 California LLC fee for the first year?
Yes. You will need to pay the $800 fee each year on your anniversary date.
Do you have to pay the $800 California LLC fee the final year?
No. You will not have to pay the $800 fee in your final year.
How can I avoid the $800 franchise tax?
You cannot avoid the $800 franchise tax unless you decide to dissolve your LLC.
What is a Statement of Information?
A Statement of Information is a form that your LLC must file with the California Secretary of State every other year to provide basic information about the company’s activities during this time period.
What tax forms do I need to file for LLC in California?
You will need to file IRS Form 3522 and Federal Tax Return if you have multiple members in your LLC. You will also need to file a State of California Franchise Tax Board tax return, form 199 if you have one member in your LLC.