How to Form an LLC in California: 10 Essential Steps

Get Started

How to Form an LLC in California

 

The Limited Liability Company (LLC )is a popular business structure that allows one or more people to own a portion of a company. Profits earned by the LLC are passed through to its members, which means that the LLC does not file a separate tax return the way corporations must do.  An LLC also reduces the owner(s) exposure to liability from the company’s activities.

 

It's straightforward to create an LLC in California, and here we'll show you exactly how, based on California’s latest LLC laws which were updated at the start of 2014. (Be aware that any sources of advice or information you may find that cite the old "Beverly-Killea" law are out of date.)

 

To create an LLC, California asks you to file a one-page form called the Articles of Organization, providing a few company details. Under the new law, acceptance of the Articles by the California Secretary of State is the moment of your company's creation. Before this, however, there's some preparation you should undertake, and afterwards there are some agencies to notify.

 

 

The 10 Steps to Form an LLC in California

 

1. Company Name

Obviously you need a company name that no other business has rights to use. See our SunDoc article Is My Business Name Available? for help with conducting your own search, or let us run your name search for you for an affordable fee.  At a minimum, you need to check if your preferred name is available in the State of California. It’s also a good idea to check for a registered trademark on your name through the USPTO web site.

 

2. Organizer

The organizer must be named in the Articles of Organization form that you file. Anyone can be named as your organizer, and doesn't need to be a member or manager of the LLC. Your attorney, if you're using one, will likely be your organizer also. SunDoc can be named as your organizer if you use our service to file your Articles of Organization.

 

3. Registered Agent

You must choose a registered agent, and the Articles of Organization will ask for the name and address of this person or firm. For more information on registered agents and why your company must have one, see our article on Registered Agent Service.

 

4. Ownership and Management Structure

For a California LLC, the Articles of Organization will ask you if you're being managed by one manager or multiple managers or by all the members. What you’re choosing here is if you want to be a member-managed or a manager-managed LLC. To answer this question, read our guides to each method: Member-Managed LLC and Manager-Managed LLC.

 

5. Operating Agreement

California doesn't require an LLC to have an Operating Agreement. An implied operating agreement is formed according to the default conditions specified in the law, but you should examine if those conditions are in your best interest or not. If you're going to be manager-managed, you HAVE to create an operating agreement for your company records, because the new law says that this structure only exists when you declare it in the Articles AND in your operating agreement.

 

As we cover in detail in our member-managed and manager-managed guides cited above, matters of money, voting, liability and fiduciary constraints are at stake here. The operating agreement is the legal engine that drives your business, creating its governance, managing its working capital and paying out its profits. If there's one area where you may wish to bring an attorney in for advice, this is it. Download our Free California LLC Operating Agreement to study an attorney-drafted, sample Operating Agreement.

 

6. Articles of Organization

Finally you've made all the decisions necessary to file your Articles of Organization. You need the name and address of the company, and of the organizer and the registered agent, and your choice of management method. California doesn't require the member names to be filed, nor does it require any publication in a newspaper of record. The current filing fee is $70.

 

If time is an issue or if you've decided to let a filing service handle your paperwork, SunDoc can file this for you. We’re based in downtown Sacramento and we hand-deliver filings to the Secretary of State offices several times daily. This expedited LLC formation takes about two weeks, but we can also provide a 24-hour rush service. See our service to Form a California LLC Online.

 

7. EIN & Bank Account

Congratulations! You are now a registered California LLC. Next we enter ground where you may want help from an accountant. Any LLC with more than one member will need to file at the federal level with the IRS for an Employer Identification Number, an EIN. You need this regardless of if you have employees or not. You can file this yourself with the IRS, or SunDoc can file it for you.

 

Many banks will expect you to have this EIN when you open a business account, which would be your next step. If you've paid fees and expenses using a personal account so far, this is a good milestone both to make sure you kept receipts for reimbursement and to set up your company's fiscal management.

 

8. California State Tax

Be aware that your LLC must pay a minimum annual tax of $800 to California's Franchise Tax Board, including in its first year of operation. This is not an income tax on owners, simply a cost to do business in California. Also if you sell goods in California you typically will be required to collect sales tax. You can find more information on state taxes at the State of California’s tax web site.

 

9. Licenses and Permits

Most California companies will require one or more business licenses or permits to operate, typically at the city or county level. Use California's one-stop resource CalGOLD to find the requirements for your business. It’s important to check your business with CalGOLD, even if you think you’re exempt. You may well be surprised by what’s required of you, and while this needn’t be burdensome, it will cost you much more not to know.

 

10. Statement of Information

Within 90 days of filing to form an LLC in California, you must file a Statement of Information (SI) also known as the Annual Report. But unlike a corporation, in California you only need to file the SI every two years after your initial filing. The Statement of Information is a simple form to keep the state up to date with your company information. It will usually be one of the forms you’ll file with the state when you make changes to your company.

 

It costs $20 to file an SI, and $250 if you're late, so as with all business filings required by government departments, it’s important to be timely. As always, SunDoc can file the Statement of Information and all these routine filings for you, reliably and on time.  If you’re a DIY entrepreneur, you can find this form and all other LLC forms at the California Secretary of State web site.

 

It's beyond the scope of this article to discuss your potential insurance needs or matters relating to employees. It's usual for most businesses to use an accountant, and often an attorney. Anytime in business that you're not completely certain on legal or financial matters, please consult an attorney or accountant. Note that nothing in this article can be construed as legal, tax or accounting advice.