How to Form an LLC in California | Guide on California LLC

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.

California LLC

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 along with 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. 

Tax Benefits

California is a state where various tax credits are given to qualified companies. There is 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, then it will get access to corporate tax rates. For a small company, the tax rates are lesser than the bigger ones.
  • Capital gains exemptions – For the smaller companies, if qualified, will get the facility of capital gain 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. 

Raising Funds

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.

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 Company a hybrid business entity combining a corporation’s characteristics with a partnership or sole proprietorship. This section gives you a step-by-step guide on How to Start an LLC in California. 

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? 

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, 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 agents for your LLC is required. 

Make sure your registered agents are residents of Alabama. It could also be a business. Here are the recommended agents and employees for you:

These five LLC formation services are recommended agents’ registered services 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 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 agreement is 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. 

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.

Mail to:

Internal Revenue Service

Attn: EIN Operation

Cincinnati, OH 45999

Fax: (855) 641-6935

Fee: Free

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 & licenses
  • Get liability for business insurance with coverage for employees
  • File a California LLC annual report or biennial report
  • 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 upcoming filing deadlines and filing fees or filing costs, including fees for late filings to make sure your LLC is up-to-date.  

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 as 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.

Service Sector

The Californian state’s service sector like educational services, health care services, tourism, and leisure services sector has shown promising growth in few years. There are more than 4 million small to big service provider businesses in the state that has a considerable contribution of around $500 billion. Out of this huge value, only two universities, named the University of California and the University of California, Los Angeles, contribute around $!29 billion, which is enormous.

Renting Businesses

The population of the Californian state is increasing day by day. In the past few years, the state’s people have doubled as people are seeing more scope of earning money in the state. It is nearly impossible for every person to buy a new property, which is why they look for renting houses. If you are thinking to start 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: 1 hour and 5 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.

  1. 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.).
    name llc

  2. 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.
    get registered agent

  3. 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.
    file formation certificate

  4. Create operating agreement

    An operating agreement is not a strict requirement but something encouraged when you start an LLC.
    create operating agreement

  5. 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.
    get an ein

F.A.Qs

What is the difference between ‘domestic LLC’ and ‘foreign LLC’?

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.

What do I need for Domestic and Foreign LLCs?

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.

Is the cost to form an LLC the same across states?

The cost to form an LLC varies per state.

Does an LLC need to use a DBA?

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

Why are operating agreements important?

This document is vital as it ensures that all business owners are on the same page regarding how they operate, thus reducing future conflicts.

Is there anything else I should keep in mind when naming my LLC?

>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.

Where can I file my LLC name?

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.  

How can I know if my URL name is available?

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. 

Can I mail the LLC Certificate of Formation to the Secretary of State?

No. Never mail these documents or payments to the Secretary of State directly. 

Why do I need an EIN?

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

How do I get an EIN when I do not have a Social Security number?

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.

I already have an EIN for a sole proprietorship; what now? 

Note that an LLC is different from a sole proprietorship. If you already have an EIN for your sole proprietorship, the IRS will require you to get a new one when your convert to an LLC. 

Do foreign applicants need an SSN to get an EIN?

International EIN applicants do not need an SSN to get an EIN.

What is an IRS?

The IRS is the one that will issue your EIN. You can request an EIN from the IRS ONLINE or download the FORM, fill it out, and send it by mail or fax.

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