Forming an LLC (Limited Liability Company) in California is easy and affordable. The following are few procedural steps on how to start an LLC in California. LLCs can be formed in two ways, domestic and/or foreign. If you are planning to set up an LLC in states other than California, visit How to Start an LLC.
On this page, you’ll learn about the following:
- How to Start a California LLC
- After Starting Your California LLC
- Why an LLC in California
- Businesses to Start in California State
- California LLC Formation Review
How to Start a California LLC
Suppose you’re planning to invest in any type of business or maybe about starting a business in California. In that case, forming an LLC in California is the simplest option for you.
An LLC or a Limited Liability Companyis a type of business that is more of a hybrid of a corporation’s characteristics with a partnership or sole proprietorship. It gives owners liability protection or personal liability protection with the separation of personal asset from business ones. This section gives you a step-by-step guide on How to Start an LLC in California as your ideal business.
Step 1: Decide a Name for Your LLC
If you are to start an LLC in California, the first thing you do is decide on a business or company name, and how to name your LLC may be tricky. Thus, you have the option to choose a name that complies with the California business naming requirements. It must also be easily searchable for potential clients. Here is a step-by-step guide to follow when naming your California LLC.
Why do you need a proper business name?
If you want your LLC to have special identification, your company name is essential. However, many people face lots of issues by avoiding focus on choosing a business name for their LLC business formation filings.
Because of this, here are some of the major benefits of choosing the best LLC corporate names.
- To help establish a company’s presence in the market, a proper business entity type will help you. This also creates a new identity that will resemble your LLC.
- After you’ve properly chosen the name for your LLC, you will have no problems finishing the registration process.
- You can only get the EIN number when you have your name registration certificate with you.
What are the requirements when deciding a name for your LLC?
A name search is vital to make sure your business’ name is unique. Check the availability of your name with Business Entity Search on the California Secretary of State’s website. Reserve the name by completing the Name Reservation Request Form for Domestic Entities.
- Don’t include words that could confuse people about your company. Words like ‘treasury, state department.’
- You should also avoid restricted words like ‘bank, attorney, university,’ because they may require a lawyer and more paperwork.
- As for a business website and your URL name, check if your name is still available for domain use with NameCheap.
Reserve a business domain
Even if you don’t have plans to set up a website today, it will help if you buy a domain to avoid others from using your name for their website, so do visit NameCheap for your domain name and Kinsta for web hosting.
If you have decided on your URL name and have reserved it, set up a professional email account with Google GSuite.
Step 2: Assign a Registered Agent in California
A registered agent for service, or business entity, is a person that will act or work on your behalf. This person or business will receive significant tax forms, legal documents, a notice of lawsuits, and other official government correspondence in California. Choosing California registered agent for service is required when setting up an LLC.
Make sure your registered agent has a field office or a registered permanent address or mailing address in California. It could also be a business. Check out the best registered agent for service from this list.
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These five LLC formation services are recommended the registered agent service as they are authorized to conduct business in California. Compare them to check the best yet cheapest option for you. Besides, they can guarantee you professional service because they have been in the business for years.
Step 3: File Articles of Organization in California
A Certificate of Name Reservation is among the formation documents needed to file Articles of Organization, as other states call it. You need to make reports of this certificate with the California Secretary of State. You may file the statement by mail or file them online, which costs $70.
This Certificate of Formation is a legal document needed to form your business officially. It will indicate details about your LLC in California, like if it is a member-managed or managers-managed.
Before you start filings, you must already have your LLC name and registered agents or employees. You will attach a copy of your Name Reservation Certificate along with a list of the services that your California LLC will offer.
How to File Online
Go to the Secretary of State Online Service. Select “non-subscriber.” Fill out the online form. The website will alert you if your county does not support online filings after selecting your principal county.
How to File by Mail
If you prefer filing real-life forms for your Indiana LLC registration, then you can download the California Limited Company Certificate of Formation. Read the form thoroughly and fill it out. It will have to fill, among others, your name, city, state, zip code, and signature.
Step 4: Create Your California LLC Operating Agreement
An operating agreementis a document that legally outlines the proprietorship and operating procedures of your LLC This document is vital as it ensures that all business owners are on the same page regarding how they operate, thus reducing future conflicts.
Starting an LLC in California does not require you to have an operating agreement, but it is ideal to have one that contains all your details of business operation.
Step 5: Filing a California LLC EIN
The Employer Identification Number or, simply, the E.I.N. is a nine-digit number given by the Internal Revenue Service (IRS) to make it easier to identify types of business for tax purposes. It is like a Social Security number dedicated to a business. This is regardless of the form of business.
It is also called a Federal Employer Identification Number (FEIN) or a Federal Tax Identification Number (FTIN). You will need this number for tax filing and to determine tax classification options.
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
After Starting Your California LLC
After forming your LLC, there are still some things that you will need. Take note of the following:
- Get a company business account
- File California business permits & business licenses
- Get liability for business liability insurance with coverage for employees
- File a California LLC annual report or biennial report. NOTE that LLCs in California must pay a franchise tax:
- $800 for LLCs with annual revenue < $250,000
- $800 + Estimated Filing Fee for LLCs with annual revenue > $250,000
- Already existing LLCs that wish to operate in California must register as a foreign California LLC.
This page has provided you with steps to LLC formation and filing processes. You now have to remember the filing period, filing requirements, filing procedures, and upcoming filing deadlines on top of the filing fee, including the filing fee for late filings to make sure your LLC is up-to-date. It is especially vital to remember deadlines for federal taxes and other additional taxes.
Why an LLC in California
With a GDP of $2.3 Trillion, California’s economy has become one of the strongest ones in the last few years. Having an LLC in California is not only easy but also economically profitable for any start-up.
Among 130 businesses, the top 20 businesses have their business home in California. The reason is the flexibility of businesses and the strong economy, tax benefits, and other advantages of California LLC.
Personal Liability Protection
In California, starting an LLC means your personal liability is protected from your professional debts. In any situation, if you are unable to pay the debts, none of your personal assets will be lost. Personal and professional assets and liabilities are separated.
California is a state where various tax credits are given to qualified companies. A couple of important tax benefits that a qualified company can get while starting an LLC in California.
- Small Business Tax – In California, if the company is small and qualified, it will get access to corporate tax rates. For a small company, the tax rates are lesser than the bigger ones.
- Capital gains exemptions – If qualified, the smaller companies will get the facility of capital gains exemptions.
- Same Tax rate as Partnership – When you start your LLC in California, it will generate a C-corp. You can shift from C-Corp to S-corp if you want if certain eligibility criteria meet. The tax rates will be the same for S-corp as Partnership.
Low-Cost LLC Formation
The cost of LLC formation in California is much lesser than in the District of Columbia, Connecticut, and Delaware.
As per requirement, California LLCs can raise funds through sales of stocks. There are some criteria to meet. Once qualified, companies can raise funds easily.
Businesses to Start in California State
There are plenty of business ideas that must be hitting your mind if you want to start an LLC in California. But it is not possible to enter every business and earn money. So, here is a list of businesses that one can consider starting in California.
Technology related manufacturing
The sector of technology manufacturing is employing the most significant proportion of the workforce compared to other industries, i.e., 9.4%. High-tech computers, software developments, and electronic items come under this business industry. It is noted that the technology products have constituted an equal of around 29% of the total export of state, which is equal to a contribution of $120 billion to the state GDP.
The Californian state’s service sector like educational services, health care services, tourism, and leisure services sector has shown promising growth in few years. More than 4 million small to big service provider businesses in the state have a considerable contribution of around $500 billion. Out of this huge value, only two universities, named the University of California and California, Los Angeles, contribute around $!29 billion, which is enormous.
The population of the Californian state is increasing day by day. In the past few years, the state’s people have doubled as people see more scope of earning money in the state. It is nearly impossible for every person to buy a new property, so they look for renting houses. If you are thinking of starting a new business, then renting a business is also great. A significant portion of renting business contribution is made by corporate sector renting.
There are some small business ideas also that you can consider if you have low investment.
- Customized cake shops
- Catering business
- Gift shops
California LLC Formation Review
Time needed: 30 minutes.
Just to recap, here are the easy steps again when forming an LLC in California. Click on the steps in this list to read the full detail.
- Name your California LLC
The first thing you must do is to choose a company name, which should include the phrase “limited liability company,” or one of its abbreviations (LLC or L.L.C.).
- Choose a registered agent
In California, it is mandatory to select a registered agent for your LLC. You can check out our list of our 5 Best LLC Services in the United States.
- File a formation certificate
Filing a formation certificate is necessary when forming an LLC. Depending on the state, it could be called any of the following: Certificate of Formation, Articles of Organization, or Certificate of Organization.
- Create operating agreement
An operating agreement is not a strict requirement but something encouraged when you start an LLC.
- Get an EIN
The Employer Identification Number (EIN), also called Federal Tax Identification Number, serves to identify a business entity like a social security number but for a company.
A “domestic LLC” is one that conducts business in a state where it was formed. Meanwhile, a “foreign LLC” is an existing LLC that extended business to another state.
For Domestic LLCs, it is vital to have a Certificate of Name Reservation and Certificate of Formation. For the foreign LLCs, you must have a Certificate of Good Standing.
The cost to form an LLC varies per state.
Seldom do L.L.C.s use D.B.A. or a ‘Doing Business As’ name nor a fictitious business name. However, if you want to have one, you make read more about DBAs here.
This document is vital as it ensures that all business owners are on the same page regarding how they operate, thus reducing future conflicts.
>Your name should have “L.L.C. or LLC” or the phrase “limited liability the business.”
>Do not include words that could create confusion between your LLC and any government business.
>Words like ‘bank, attorney, university’ are restricted as well.
>Lastly, your name should distinguish from other limited liability corporations, limited partnerships, or registered limited liability partnerships.
Typically, you can file your LLC name online or by mail. Check with the state where you will set up your LLC name. Take note that the fees for business names may also vary per state.
As for a website and your URL name, check if your name is still available for URL use with NameCheap to see if your name is available as a web domain. Even if you don’t have plans to set up a website today, it will help if you buy a URL. Buying it can help to prevent others from getting your name; check out WPEngine, Kinsta, and GoDaddy for hosting and building your website.
No. Never mail these documents or payments to the Secretary of State directly.
The reason you might need an E.I.N. is that it would help for three reasons:
>Opening a business bank account
>Filing and managing federal and state taxes
>Hiring employees or agents
You are not required a Social Security number when getting an EIN. You can proceed to fill out I.R.S. Form SS-4 and leave section 7b blank. You must then call the IRS at (267) 941-1099 to complete your application. Agents or employees will help you with that.
International EIN applicants do not need an SSN to get an EIN.