Having a California LLC is a better and cheaper option than having other business structures. A limited liability company (LLC) reduces the owners’ personal liability and protects their personal assets. One can start an LLC in two ways, domestic LLCs or foreign LLCs (LLCs in more than one state). By following some basic steps, you can easily form an LLC in California.
On this page, you’ll learn about the following:
- How to Start an LLC in California
- After Starting Your California LLC
- California Foreign LLC
- Why an LLC in California
- Businesses to Start in California State
- California LLC Formation Review
How to Start an LLC in California
An LLC or a Limited Liability Company is a hybrid business entity combining a corporation’s characteristics with a partnership or sole proprietorship. It separates your personal assets from your business assets, thus giving you personal asset protection. 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
Deciding on a business name is the first step to start an LLC. In California, before you name your LLC, it is important to note a few things. Firstly, make sure the name is available to use. If the name is available, then check if the name complies with all the California business naming requirements. Once you pass through them, you can successfully name your business.
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.
Requirements when deciding a name for your LLC
LLC Name Search: A business name search is required to check if the desired name is available or not. If the name is available then the business owner has to fill up a name reservation form and send it to the Secretary of State, California. To do the name search, one has to visit the Business Entity Search page on the official Secretary of State website. Send the name reservation form to the below address by mail to reserve your LLC name in California. The cost of a name reservation is $10 (by mail) & $20 (in-person).
Important Quick Links:
Secretary of State, Atten: Name Availability Unit
1500 11th Street, FL. 3
Sacramento, CA 95814
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Step 2: Assign a Registered Agent in California
A registered agent is a person or business entity 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 a 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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Note that availing of the services of professional registered agents would be your best option since you are guaranteed that whoever is handling your legal affairs knows their stuff well. You will enjoy peace of mind and focus only on running your business, as the ‘professionals’ take care of all legal matters.
These LLC formation services are recommended registered agent 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 your California formation certificate or what is also called 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 for a cost of more or less $70, which makes up the majority of the LLC cost in California. That is topped with other expenses, of course.
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. To know more about online filing, visit the California Certificate of Formation.
How to File by Mail
If you prefer filing real-life forms for your California 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. You may also file in person by visiting the office on business days. Additional charges are required for the in-person filing of the California certificate of formation.
Mail To: Secretary of State
Business Entities Filings
P.O. Box 944228
Sacramento, CA 94244
In-person Drop-off: 1500 11th St.
Sacramento, CA 95814
Mon-Fri. 8 a.m. to 5 p.m.
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.
You are not required to have a comprehensive LLC operating agreement in California when starting an LLC, but it is ideal to have one that contains all the details of your business operation. This document would be useful if you decide to dissolve Californa LLC later.
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 and taxes in general. It is like a Social Security number dedicated to a business’ taxes. The EIN is necessary for any active business or any form of business for that matter.
To obtain EIN (aka FEIN) one has to fill up a form (Online or by mail) and submit it to the IRS. Before sending the form, ask for EIN Assistant. Enter details of your LLC, and finally complete the form and send it to the address given.
Mail to: Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999
Fax: (855) 641-6935 | Fee: Free
Note: You don’t need 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.
And that’s all! Congratulation, you are now done with all the necessary steps to form your California LLC. If you still haven’t used a professional service from here, I strongly recommend having one to handle the remaining tasks.
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 bank account
- File California business permits & business licenses
- Get liability for business and professional 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 California foreign LLC.
This page has provided you with steps to LLC formation and filing processes. You now have to remember upcoming filing deadlines and separate filing fees or filing costs, including fees for late filings to make sure your LLC is up-to-date.
California Foreign LLC
To register a California foreign LLC, one has to file the foreign LLC formation certificate with the Secretary of State, California. Forming a foreign LLC allows you to operate your business in more than one state in the USA as a single business entity. Check California Foreign LLC to know more about having a foreign LLC.
Why an LLC in California
California is one of the best states to set up an LLC. 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 mostly is the tax benefits. LLCs in California do not require to pay additional taxes or a huge amount of federal taxes. Other than the filing fee, there is a fee for expedited filings and late filings.
LLCs with employees have to obtain EIN. In that case, LLCs may have to pay ’employer taxes’ to the government. Other than this LLCs do not have any tax burden in California. There are some government regulations under which LLCs get incentives and grants. Here are some benefits of having an LLC in California,
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: 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.
- Name your California LLC
The first thing you must do is to choose a company name, which should be unique, easy to find, and available in the state.
- 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.
If you are a resident of California, then you can file your LLC by yourself. However, it is always worth having a professional than doing it yourself to handle legal complexities, paperwork, and other documentation.
Apart from the formation fee of $70 (domestic LLC) and $70 (foreign LLC), LLC costs in California include $20 for Biennial Reports every 2 years. LLCs have to pay an Annual Tax of $800 in California. LLCs are liable to pay sales tax of 7.25% every year
It takes 5 business days to get a California LLC if you file it online or via mail. With an additional cost, it can be done in 4 hours.
Every year all the LLC have to submit an Annual Report and pay $20 every 2 years along with $800 Annual Franchise Tax to the California Secretary of State and renew the LLC. It is mandatory to renew your LLC every year.
Generally, for the LLCs, it is a default tax structure. Once you will obtain the EIN, you will get the various tax structure options to select. Sometimes LLCs choose S Corp to reduce federal tax burdens.
LLCs are easier to establish than other business structures. Small businesses, especially start-ups can easily start their LLC in California at a bare minimum cost. LLCs have a ‘pass-through taxation’ advantage for which they are excluded from certain taxes. The formation of limited liability companies requires much lesser documents and legal processes. Share your queries with us, leave a comment below.