Form a Limited Liability Company in California
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How to Form a California LLC in 10 Steps
A Limited Liability Company (LLC) is a common business structure that allows one or more persons to own a portion of a company. Profits earned by the LLC are passed through to its members, and the LLC does not file a separate tax return the way a corporation does. An LLC also reduces the owner(s) exposure to liability from company activities.
Forming a Limited Liability Company is a straightforward process, but there are several steps you'll want to follow.
1. Choose Your Company Name.
You need a company name that no other business has the rights to use. See our SunDoc article Is My Business Name Available? for help conducting your own name search, or SunDoc can run your name search for a reasonable fee. At a minimum, your preferred name must be available in the State of California. It is also wise to check for a registered trademark on your preferred name through the USPTO website.
2. Understand the LLC Organizer Requirement.
You must name an LLC organizer on the Articles of Organization form. If you prepare and file your own Articles, by default you are the organizer. However, anyone can be named as organizer, not necessarily a member or manager of the LLC. For example, an attorney involved with the business formation often acts as organizer. If you choose SunDoc to file your Articles of Organization (included in our Pro Package), then SunDoc can be named as your organizer.
3. Designate a Registered Agent.
You must designate a registered agent, either a person or a firm. This is required for the Articles of Organization form (see #6). For more information on registered agents and why your company must have one, see our article on Registered Agent Service.
4. Decide Your Ownership and Management Structure.
The Articles of Organization form asks whether your California LLC will be managed by one manager, multiple managers, or all the members. You must decide whether you want to be a member-managed or a manager-managed LLC. To help you decide, we have created guides for each method: the Member-Managed LLC or the Manager-Managed LLC.
5. Create an Operating Agreement.
Your specific entity type may require an operating agreement. An operating agreement is a key document used by LLCs because it outlines the financial and functional decisions of the business, including rules, regulations and provisions. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners.
The Operating Agreement is the legal engine that drives your business, creating its governance, managing its working capital, and paying out its profits. Critical matters of money, voting, liability, and fiduciary constraints are at stake here. The SunDoc guides Member-Managed LLC and Manager-Managed LLC are a good source of information, but you may also wish to consult an attorney for advice.
6. File the Articles of Organization.
Your state will probably require you to file a form called the Articles of Organization, providing your company details. The acceptance of your Articles of Organization by the State of California is the moment of your company's creation.
In order to file your Articles of Organization, you will need the name and address of your company, your LLC organizer, your registered agent, and your management method. You may require the member names to be filed.
SunDoc can file the Articles of Organization for you if time is an issue or if you'd prefer to have a filing service handle your paperwork.
7. Obtain an EIN and Open a Business Bank Account.
Congratulations! You are now a registered California LLC. Any LLC with more than one member must file with the IRS for an EIN, Employer Identification Number, whether or not you have employees. You can file with the IRS yourself, or SunDoc can file for you.
An EIN is also required by most banks in order to open a business account. If you've been paying business expenses out of a personal account up until now, this is a good time to set up your company's fiscal management. Make sure you keep all receipts for reimbursement no matter the account you’ve used for payments. At this point you may also want to find an accountant for help with business matters.
8. Pay California State Taxes.
Each year your LLC may be required to pay necessary fees and taxes to your state, possibly including in your first year of operation. If you sell goods in California, you may be required to collect sales tax. You can find more state tax information on the State of California’s tax web site.
9. Determine Necessary Licenses and Permits.
Most states require companies to have one or more business licenses or permits to operate at the city or county level. Use your state's business website to find the requirements for your business. It’s important to check this website even if you think your business is exempt. You may be surprised to discover what’s required. Operating without the proper license or permit can result in expensive fines.
10. File an Annual Report (Biennial Report or Initial List).
Usually you must file an Annual Report, Biennial Report, or other such document soon after forming an LLC in California, and thereafter an updated report every year or two years depending on your state’s requirement. The Annual Report is a simple form that keeps the state up to date on your company information. And down the road when you make changes to your company, it will invariably be one of the forms you’ll need to file with the state.
It is very important to file within the required time. It can cost you as much as ten times the normal filing fee if you file late! If you prefer, SunDoc can file your Annual Report/Biennial Report and other routine filings for you, reliably and on time. All LLC forms, including the report form, can be found on the California business web site.
Important Notice: It is beyond the scope of this article to discuss your potential insurance needs, or matters relating to employees. You should consult an attorney or accountant with any questions about legal or financial matters. Please note that nothing in this article can be construed as legal, tax or accounting advice.
For additional learning, please visit our LLC FAQs.
Helpful Links For California Businesses
California State Association of Counties To find information about building permits, business licenses, fictitious business names, zoning and other business entity activities, visit the county agency applicable to your business address.
Department of Consumer Affairs for information about licensing requirements.
Department of Corporations for information about the issuance and sale of securities, Franchise Investment Law, Personal Property Brokers Law and Escrow requirements.
Department of Industrial Relations, Division of Workers Compensation for information about workers comp requirements.
Employment Development Department for information about disability unemployment insurance tax.
Franchise Tax Board for information about franchise tax requirements.
State Board of Equalization for information about sales tax and/or use tax liability.
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