The Golden State, Silicon Valley, Disneyland and Coachella. California is known for many things including its wine country and sunny beaches, however, it is also where businesses of all shapes and sizes thrive with America’s largest state economy weighing in at $3.36 trillion.
Numerous budding entrepreneurs chose California to launch their LLC and tap into the state’s advantageous population, wealth and resources to grow their business. Here’s what you need to do to kick start your LLC dreams.
When it comes to taxes and legal protection, small companies may gain a lot by forming an LLC. If you think an LLC would be the best option for your company, here’s how to set one up in the Golden State.
Please be aware that you may either set up the LLC on your own, or hire a company formation specialist to handle the process for you.
1. Naming basics
Your company’s name must follow all applicable federal and state laws. The state of California mandates that your LLC’s name:
- Stand apart from the rest of California’s LLCs.
- Limited Liability Company (or just “LLC”) should be included. For example, “Ltd.” may stand in for “limited” and “Co.” can stand in for “business.”
- If you don’t want people to mistake your company for the government, avoid using terms like “treasury” or “state department”
- The following is a more comprehensive set of rules to follow while choosing an LLC name.
2. Appoint an Agent of Service of Process
If your California LLC is located in the Golden State, you must choose a local resident as the Agent for Service of Process. In certain states, a Registered Agent takes the place of an Agent for Service of Process.
The role of the Agent of Service of Process
If you own a company, you need to choose a reliable third party to act as your “Agent of Service of Process,” or A.S.P., to receive legal and tax paperwork, court notices, and other official communications from the government on your behalf.
The role of your registered agent is similar to that of a liaison between your company and the government.
Who may act as Agent of Service of Process
An Agent of Service of Process in the State of California must either be a permanent resident of California or a California company with the authority to accept service of process. You, or anybody else in the business, may make the choice.
3. Draft and Register Articles of Organization
Your limited liability company (LLC) will be formally established with the help of a document called Articles of Organization. File Articles of Organization with the California Secretary of State using Form LLC-1.
To register a California LLC with the Secretary of State, you must first draft and submit Articles of Organization. Even though it may seem like a lot of work, all you have to do is fill out a short online form and send it in. Alternatively, you may mail it.
These are some of the things you’ll often need in order to have your articles ready:
- The Name and Location of Your LLC.
- Why an LLC was formed.
- Your designated agent’s full name and mailing address.
- How will the LLC be managed? By its members or by outside managers?
- The Articles must be signed by the individual establishing the limited liability company.
The secretary of the state will examine your Articles of Incorporation once you submit them. If the documents are accepted, the limited liability company is formed. Applying in California may be done by letter, electronically, or in person.
4. Get your Certificate From the State
After the LLC formation paperwork is submitted and authorized by the state, the state will provide a certificate attesting to the LLC’s legal existence. Certificates may be obtained the fastest by filing online.
5. Setup an Operating Agreement
In the state of California, an operating agreement is required for every limited liability company. Your business’s ownership and operating guidelines are spelled out in this document.
Essentials like who may do what inside the firm, how revenues and losses will be split, and what the buyout terms are should all be spelled down in this document.
If all members of an LLC sign an operating agreement, it becomes a legally enforceable contract and is not required to be filed with the state.
6. Filing of your Statement of Information
A California limited liability company (LLC) must submit an Initial Statement of Information (Form LLC-12) with the Secretary of State within the first ninety days after it is formed. This may be done over the internet, in person, or by mail.
- What follows is a partial list of what may be found on a Statement of Information:
- Company name and California State Secretary filing number for a Limited Liability Company
- Agent’s name and address for a limited liability company
- The official headquarters of the company
- Mailing address for the LLC
- Whether or not a manager has been chosen, as well as their full names and business or residential addresses, or if no management has been elected, the names and addresses of all members.
- The LLC’s Contact Information via email
- The LLC’s primary business focus.
The filing period consists of the month in which the first articles of organization were submitted together with the five calendar months that immediately precede it. You may submit the form to the California Secretary of State either electronically or by printing it out and submitting it through mail or in person. A $20 filing fee must be paid.
7. Get an EIN (Employer’s Tax Identification Number)
An EIN, or tax ID number, is a federally issued identification number required by many LLCs. You will need an EIN to register a business with the IRS, open a bank account, and in many cases, recruit workers.
The IRS’s site has all the information you need to determine whether you need an EIN and how to apply for one, and it’s free of charge. Although most companies will need an EIN, single-member limited liability companies (LLCs) may use the owner’s SSN instead.
In certain cases, securing the proper state and municipal licenses and permissions for your limited liability company’s operations is essential. Go to the CalGold website to learn more about the state’s requirements.
Your LLC should also contact the local city or county governments in the area in which it operates to learn about any additional regulations that may apply.
8. Pay Your Annual Franchise Tax
An LLC must pay a $800 franchise tax to legally do business in the Golden State. This cost must be paid every year, whether or not the company makes any money. Your company must pay an extra yearly charge if its annual gross sales are more than $250,000.
California limited liability companies created in 2021, 2022, or 2023 are exempt. California’s current minimum franchise tax of $800 is waived for the first tax year of every limited liability company (LLC) that files or organizes to conduct business in the state under the new law. The LLC is responsible for the $800 payment in the second tax year.
Fees and Next Steps?
The $800 franchise tax price is in addition to the $70 filing fee, $10 name reservation application fee, and $20 statement of information processing fee that must be paid within 90 days of the LLC’s establishment.
What Should Be Done Next?
After registering your limited liability company, you will have the backing of the law to start operations. Companies should make preparations to maintain their LLC’s legal compliance and present state on the government’s website.
Every two years, during a six-month “filing window” that corresponds to the month the LLC was founded, all California LLCs that do business are required to submit a Statement of Information to the Secretary of State and incur a fee.
Additionally, LLCs are responsible for making tax payments. If your limited liability company (LLC) has workers, it must apply with the California Department of Employer Development and pay employer taxes.
You must register your California limited liability company with the state’s tax agency if it plans to engage in sales tax collection. The California State Board of Equalization requires registration from every business that will be collecting sales tax. Your company must have a registered agent.
One other benefit of having an LLC that’s been officially registered is the ability to:
- Open a business bank account
- Apply for a company credit card
- Purchase business insurance
- A trademark may help you protect your business’s name and logo.
- In order to begin collecting taxes from customers, you must register your company with the state.
- Get any health department permissions, zoning permits, home occupancy permits, business licenses, and any other licenses you need to legally run your company. A seller’s permission is needed in several states.
Form your LLC via a third-party service or on your own?
To set up an LLC, you won’t need to pay for legal representation. You may start a limited liability company (LLC) in most states by establishing the commercial enterprise on the website of the secretary of state and with the Department of Internal Revenue (IRS).
Using a seasoned LLC formation service might be helpful if you don’t know your way around the LLC creation procedure.
When starting a business, entrepreneurs may save both time and money by using a firm that specializes in forming limited liability companies. You may have them take care of the things you haven’t had time to think about, and pay anywhere from $50 to $500 to get them done including:
- The formation of an operating agreement for a limited liability corporation (LLC) that details the who, what, where, when, why, and how of your business.
- Writing up articles of incorporation that include the LLC’s management, registration agent, and creation date.
- Taking up the role of registered agent for your business.
- In the event of an audit or legal proceeding, having meticulous documents is essential.
- Paying the necessary payments and signing up with the right authorities.
- Checking the availability of the LLC name and registering the company name.
- Having the necessary formation and legal paperwork completed and filed.
How much will it cost to register an LLC in California?
The $800 franchise tax price is required to be paid in addition to a $70 filing fee, $10 name reservation application fee, and $20 statement of information filing fee that must be paid within 90 days of the LLC’s establishment.
Can I create a professional LLC in California?
LLCs cannot be created to perform professional services in California. The term “professional services” refers to any service that calls for a certain kind of state license. The state of California allows licensed professionals to organize limited liability partnerships as an alternative to establishing an LLC (LLPs).
What must be done to establish an LLC in California?
In California, an LLC may be formed by deciding on a business name, selecting a Registered Agent, drafting and filing articles of organization and obtaining a Certificate of Formation. You’ll also need to establish a Business Entity, File a Statement of Information, Obtain an Employer Identification Number (EIN), and Pay the Annual Franchise Tax.
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