California LLC – How to Start an LLC in California

Starting a California LLC is the right decision for any start-up. With a favourable work environment and diverse tax benefits, it is cost-effective to start any business here. Those who are newly setting up their business must know about the procedural steps to start an California LLC.

california llc

By following the steps below, one can easily form an LLC. However, it is recommended to seek help from professional services to start your LLC in California to handle financial statements and other legal documents. Meanwhile, if you are thinking of setting up an LLC in another state, then do check out Start My LLC

How to Start an LLC in California

The following guide is simple but essential for all entrepreneurs, especially for start-ups. All these procedures are to be followed according to the state’s government guidelines. Make sure to be careful while moving forward with the steps.

Step 1: Decide a Name for Your LLC

The first step in your application for an LLC is to decide the name you want to give to your LLC. You have to choose a name that should be related to your business and should also be approved under the state government’s naming norms.

You should check the name you are thinking of giving to your LLC on the Secretary of State online services website or visit the Business Entity Search to check the name’s availability through the list of names. 

Here are some of the pro tips that will help you keep a name that will help you grow.

  • You should keep the name simple and try not to add some difficult words to the name. It can confuse the audience, and they won’t remember your name for a longer period.
  • There are some words like bank, attorney, and university, which you should avoid if not required. This is because such names are going to require an extra set of paperwork through a lawyer.
  • The name should also be available for making a website as you should keep the name of your business the same everywhere. Check if the name is still available for use with NameCheap and for web hosting, which is best to get now, check out Kinsta, and Google Suite, for your professional email account. 

For more requirements on naming your LLC, see other requirements.

Step 2: Assign a Registered Agent in California

After you have decided the name, you must choose a registered agent in California. The agent is going to work on your behalf. Agents are professionals and can be a person or a business entity. They will be responsible for receiving all documents. The documents consist of the tax forms, lawsuit notices, legal documents, and internal documents on their registered office in California.

Some of the professional service providers that can be your agent and also, are able to handle all your official notices are:

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The best LLC services that would help you ease into operating an LLC or even other business structures in California. From handling business license searches and filing to tracking upcoming filing deadlines and acquiring business insurance or professional liability insurance, an agent will answer all your questions and conduct all activities you need to set up your LLC. 

It would be so much time saved on your end if you avail of a registered agent’s service. You will have more time to focus on other business matters, not to mention you are guaranteed to meet every state requirement as you have experts handling everything. 

Step 3: File Certificate of Formation in California

The certificate of formation is the legal document that you are required to start your LLC in California. It establishes the type of LLC you are setting up, if member-managed or managers-managed.

Before you file the formation document, you need to attach documents such as name registration certificate, registered agent’s details, and/or employees’ details. The filing fee one has to pay is $70. 

Online Filing:

NOTE: But in some states, you are not allowed to fill the online form. For such people, there is a second option of sending the form through the mail.

File by Mail:

  • Download the original form from the California Limited Company Certificate of Formation site.
  • Fill out the form and send it through an email to the Secretary of State Office or county judge’s judge.
  • With this form, the legal document to be attached will be the above-mentioned formation documents along with your cheque.

Mailing Address:
Secretary of State
Business Entities Filings
P.O. Box 944228
Sacramento, CA 94244

More Certification of Formation filing requirements in California is mentioned below.

Step 4: Create Your California LLC Operating Agreement

There are some major outlines and rules, regulations, and powers of attorney that become the LLC’s foundation. All of these rules and operational procedures are mentioned in the liability operating agreement. Also, when the agreement is formed, all the LLC members should agree with these rules. It will ensure that the limited liability company works smoothly and every person related to the company is on the same page.

If you want to start an LLC in California, it is not required legally to form a limited liability operating agreement. But if you want to save your business from any future conflict, it is advised that you should make this effective operating agreement.

Step 5: Filing a California LLC EIN

The E.I.N. is also known as the Employer Identification Number, which Internal Revenue Service provides. It is a nine-digit unique number given to the businesses, and it is for tax purposes. When you are filing your limited liability company’s taxes, you need this number for the government official and taxation agencies; this is your identity.

You can file for the EIN online through the California Internal Revenue Service website under Register an Entity section. Why do you need an EIN? The EIN will help you contact a business bank and will help you process your bank application.

Mail to:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935

To know more details about the documents required, you should jump to the ‘requirement section‘ below. 

Why Set Up an LLC in California?

What is an LLC in the first place? It is a type of business that protects you and your assets from issues like debts.

Do you want to start an LLC in California? Are you looking for the top benefits you will enjoy if you incorporate an LLC in California? If yes, then you should know the top reasons that make California different from other states.

Exemption from capital gains

There are many schemes launched by the government of California under which some small businesses gain huge profits. Based on shares of the small businesses, there is a tax exemption given on the capital they gain on those shares. It helps in better opportunities for the LLC owners to increase their benefits.

Options to choose low business taxes slab

The government of California has divided the state into various counties, and the taxes in each county are different. This makes the taxes in some places lower than the others that are very beneficial for the LLCs. Some of the places with low taxes are San Bernardino, San Diego, and San Francisco. The tax in these counties is around 7.25%, while in other countries, it is more.

It helps in raising extra funds easily

If there is some extra stock present in the LLC, then with the help of that stock or the process of the sale of stock, a person can raise funds. This fund can be utilized in the expansion of businesses or the betterment of the employees.

Pros of LLC

  • LLC does not have detailed formalities like minutes of shareholders’ and directors’ meetings like other corporations.
  • No restriction on LLC regarding the members and shareholders. One can structure the company as one are willing to.
  • Unlike corporations, the cash method of accounting is easy as LLCs don’t use the accrual method.
  • In an LLC, due to personal liability insurance, no shareholder and investor can possess the personal asset of the member.
  • Tax benefits such as unemployment insurance taxes on any coverage for employees, and have different tax classification options.

Cons of LLC

Cost of Forming an LLC in California

The cost to be paid for starting an LLC in California is mentioned below in detail.

  • To reserve the name of your LLC, you need to pay $10 fees to the secretary of state. If you visit the office, then you have to pay additional $10 fees.
  • After that, you need to pay around $70 for filing the articles of formation of the LLC.
  • After 90 days of formation, you need to pay $20 with a biennial report. The second report will be filed after 2 years.

Top Businesses of California

The California economy is vast, and one needs to gain complete knowledge regarding it before they start an LLC in California. Below mentioned is the detail of businesses and their contribution.

Service Businesses

The set of services comprising from health care to financial services and education to leisure services every entity is included in the service businesses. The state has more than 4 million service-related businesses, and they are generating a massive amount of $564.03 billion every year in revenue.

Film Businesses

Due to the presence of Hollywood in the state, a huge portion of the state’s revenue is generated by film businesses. With every passing year, the job opportunities in these businesses are increasing and have now reached around 2.4 million in total. The total contribution they made is approximately $49 billion.

Manufacturing Businesses

The manufacturing businesses in California are technology-intensive, and they have high establishing costs. More than 9.4% of people of the state are working under the manufacturing businesses.  The total contribution of manufacturing to the state is around $312.05 billion.

Low-Investment Businesses in California

Some of the top businesses that are established in the state with low investment are:-

  • Gas Stations
  • E-commerce Businesses
  • Real estate renting businesses

Requirements for Setting up LLC in California

When you are setting up your LLC in California, then there are some basic requirements that you have to fulfill. They are mentioned below in detail.

LLC Name

First of all, you have to think of a name for your LLC. When you think of the final name, you should get it registered through California state’s official web portal. Before finalizing the name, it would be better that you check the availability of the name and also that it is feasible for your business or not. It would help if you thought from the customer’s perspective that you would attract with such a name. 

Directors or members

When you start an LLC, you must be some people in your mind that you want to do work with as members. You should have the current list of all those members with their approval to be a part of your LLC venture. Some points that you must always have in your mind when working for the list of directors is:-

  • The LLC can be started with one or more than one member. There is no restriction on the business owners. 
  • It is not required for the member to have a permanent residence of California to be a part of LLC. 
  • The minimum age of the member should be 19. 
  • The complete legal name and address of the member must be required for Articles of Incorporation. 

Formation Articles

The articles of formation should be ready when you are forming an LLC. In these articles; you should mention the details about the business services, the members who are going to be the part of the business, and the profit division structure. The last one should be approved by every member so that there is no future conflict.

Along with that, there should be the agent certificate that you have appointed to help you with the step guide. The last thing that should be attached with the certificate of formation will be the services list. There must be some offering of your business which should be mentioned in detail.

Also, there should be a fixed value of stock required to be mentioned in articles of formation and address of the registered agent mentioned below. While selecting the business agent, you should ask them to always be available during office hours or not because they have to handle all the legal and tax documents.

California state’s demand is a bit different from the other states. Here the business entity needs to submit the form to the Judge of probate instead of the state’s secretary. 

Corporate records

The California LLC has to different corporate reports before setting up. This included the initial reports that include the initial business privilege tax filing returns and annual report. Both of these reports should be filed within two and one-half months after they start functioning. The next is the counties filing that the business has to file before its incorporation. They must be submitted to the principal office for reference. With time, the requirement increases, which is discussed below. 

  • If any member has taken any action without a meeting, it must be added to corporate records. 
  • A copy of the original by-laws and the amendments that are made in them, later on, should also be added to the records. 
  • The complete communication of shareholders over three years should also be submitted. 
  • The recent annual report should be added to the corporate records. 

Taxes and licenses

The taxes of the LLC should be filed on time, and for that, E.I.N. is important. This should be applied when all the formalities are completed. Also, according to the service you are willing to provide, you have to look at whether the service requires an annual license to operate or not. If required, then you should go through the procedure of any license formation for your LLC office.

The taxation requirements are:-

  • California requires the annual report that you file with the Department of Revenue. In the annual report, the taxes added are  Business Privilege Tax Return and Annual Report, and Schedule AL-CAR. 
  • You should need a complete detail of every small to large state and center tax. 
  • There is a state tax identification number that a business must procure. 

It is always recommended to get professional help to understand more about the LLC requirements. Check out the top 5 LLC services to look for today. Below is the list of Best LLC services, 

California LLC Formation Summary

Time needed: 30 minutes.

To summarize, here are the simple steps for creating an LLC in California. To learn more about the steps in this list, simply click on them.

  1. Choose a name for your California limited liability company.

    The first step is to come up with a business name that includes the word “limited liability corporation” or one of its abbreviations (LLC or L.L.C.).

  2. Select a registered agent for your company.

    Selecting a registered agent for your LLC is needed in California. Check out our list of the top five LLC services in the United States.

  3. Create a certificate of formation.

    When forming an LLC, you must file a formation certificate. It may be referred to as any of the following, depending on the state: Articles of Organization, Certificate of Formation, or Certificate of Organization.

  4. Make an operating arrangement.

    When forming an LLC, an operating agreement is not a legal necessity, but it is strongly recommended.

  5. Obtain an EIN

    The Employer Identification Number (EIN), also known as the Federal Tax Identification Number, is used to identify a corporation in the same way that a social security number is used to identify a person.

F.A.Qs

What is the difference between LLC and C-Corp?

The C Corp’s structures are very complex compared to the LLC, which offers a flexible and easily changeable structure. Also, the LLC is saved from the disadvantage of double taxation that a C Corp has to bear, but the LLC has a privileged taxation system due to pass-through entities.

How does LLC be different from S-Corp?

The major difference that the businessman will notice among the LLC and S-Corp is the flexibility. In LLC, you can allocate income according to your rules and change them according to your will. Also, there is a different LLC interest class that can be considered a downside of S Corp.

Distinguish between LLC, Partnership & Sole Proprietorship?

In the limited liability partnership and sole proprietorships, the owners are responsible for their debts, but the LLC facilitates owners. The LLC members’ assets are saved, and they are not considered the reason behind the debts that a company has with the help of limited liability protection. Moreover, the member’s liability is only limited to the investment that they have made in the LLC, unlike the sole proprietorships and solo partnership firms.

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