How to Form a California LLC

A Limited Liability Company, or LLC is a business entity that's a hybrid of a corporation and a partnership. An LLC consists of members, similar to shareholders. There may be a single manager, or all the members are managers. 

Not all business owners can form a California LLC. If you are a professional, like a dentist or doctor, you must form a professional corporation and have a license.

If you would like to form a California LLC, read on to find out more.

Why Form a California LLC?

There are benefits if you decide to form a Limited Liability Company California. You will have limited liability, meaning you are only financially liable for the assets you own in the business. There is also an operating agreement and rules which can make an LLC easier to run than a corporation.

How to Form a California LLC

If you would like to form an LLC, here are the basic steps. For a more comprehensive guide and a workbook, take the Legal Stepz Limited Liability Company Course.

Name your Limited Liability Company California

First of all, you should select a name for your LLC. When you decide to form an LLC, think carefully about your name choice. Choose a name that is available and not already registered in your State. If you use a name other than your given name, you must file a fictitious business name application with your county recorder.

Choose your Registered Agent

The registered agent receives mail relating to your business, such as licensing documents, legal documents, renewals, etc. You can choose a registered business agent or can give your name and address. You might also want to use an employee.

The issue with using your own name and address is that you can be served legal papers relating to your business at any time or day, at your home location. So to keep your mail professional, it is best to choose a registered agent. Hiring a registered agent will cost more but can save you embarrassment.

The address you give must be in the same US state as the state you wish to register your LLC for. 

Prepare and File Articles of Organization

You will need to file the articles of organization. You can do this online on your Secretary of State website. It is a straightforward process and is the basic business registration that many formation companies offer as formation of a business. You do need to make sure all the information you provide is accurate.

Receive a Certificate from the State

You will need to wait while the state issues you with a certificate. This certificate will confirm your LLC formally exists. These are issued when the company’s formation documents are filed and approved. If you have filed online, you are likely to get these quicker.

You will require this before you can get an Employer Identification Number, business licenses, or a business bank account.

Create an Operating Agreement

An operating agreement is not a legal requirement but is a highly recommended document for most businesses. An operating agreement details certain aspects of how the business operates. For instance, it covers who has the final decision, processes within the business, and other aspects to help run the company.

An operating agreement should be a document that could help anyone run your business, regardless of whether they have worked in the business before.

File a Statement of Information

All businesses established within the State of California must file a Statement of Information with the California Secretary of State within 90 days of forming the LLC. There are several requirements of the document that you need to follow.

Get an Employer Identification Number

If you form a California LLC and plan to have employees, you will need an Employer Identification Number. An employer identification number is assigned from the Internal Revenue Service for free. It is also a requirement if there are more than two members of the LLC.

Applying for an Employee Identification Number is relatively simple. You can do it online in minutes from the IRS website.

If in doubt, seek help from a professional.

Pay the annual franchise tax

To do business in the State all LLCs must pay an $800 franchise tax. The fee must be paid yearly regardless of income. There will be additional fees should your business have gross revenues exceeding $250,000.

However, in recent years, an LLC registered or organized to do business in California does not pay the State’s minimum annual franchise tax for the first taxable year but is payable after this.

FAQs

What is the difference between domestic LLC and foreign LLC?

There are some very subtle differences between a domestic and a foreign LLC. A domestic LLC is a business that is headquartered and does business within a state. A foreign LLC is originally registeres in another state but does business within the other state. If you operate in numerous states, you will be both a domestic LLC and a foreign LLC. This information will be found on the California Statement of Information.

What is a ficticious business name?

A fictitious business name is a identity created by a business, to do business as. This is different the entity's registered name that has been used in the articles of incorporation. A ficticious name still needs to be registered and you will be required to check that the business name is available in your state and is not protected by law.

Final Word: How to Form a California LLC

Learning how to form a California LLC is an essential step when starting a business. Above are the simple instructions on how to form an LLC in California. If you want more detailed information, you can take our course here.