How to start an LLC in California

1. Name Your California LLC

When naming your LLC, it’s important to pick a unique name that doesn’t match or resemble any other existing names in the California Secretary of State’s records and won’t mislead people. You can check name availability by searching the California Secretary of State’s business name database. You can reserve an available name for up to 60 days by filling out and submitting a Name Reservation Request form through postal mail or in person at the California Secretary of State’s office.

According to California law, when naming an LLC, it must end with Limited Liability Company, or the abbreviations LLC/L.L.C. Limited and Company can be shortened to Ltd. and Co. However, the LLC’s name cannot contain certain words such as bank, trust, trustee, incorporated, inc., corporation, corp., insurer, insurance company, or other words that imply it’s in the insurance business. To find out if a business name is available, the Secretary of State offers important information which can be accessed online or in a downloadable publication.

2. File Articles of Organization With the Secretary of State

A California LLC is created by filing Articles of Organization, Form LLC-1, with the California Secretary of State’s office. The articles should contain the following details: the LLC’s name, its purpose, information regarding its management, the address where it will operate from, and the name and address of its registered agent. You can complete Form LLC-1 online or you can mail or hand deliver the form to the Secretary of State’s office. To file, it costs $70. However, if you personally deliver the paperwork to the Secretary of State’s office in Sacramento, you can pay extra for expedited processing.

3. Choose a Registered Agent

In California, all LLCs need to appoint an agent for service of process, which is also known as a registered agent in some other states. The appointed individual or company will be responsible for accepting legal documents if the LLC is sued. It’s important to note that an LLC cannot act as its own agent. Before being appointed, the agent should agree to handle service of process on behalf of the LLC.

The LLC’s articles of organization must include the street address (not a P.O. box) of individual agents who reside in California. The agent may or may not be affiliated with the LLC and can be a member, manager, or officer. Private service companies are available to act as an agent for a fee and are listed by the California Secretary of State.

4. Decide on Member vs. Manager Management

Although small multi-member LLCs usually opt for member management, they also have the option to assign a manager or a small group of managers to handle the LLC, similar to how a board of directors oversees a corporation. These managers are responsible for voting on important matters such as acquiring a loan, buying property, or altering the company’s strategic plans.

5. Prepare an Operating Agreement

An operating agreement is a document that explains how an LLC will conduct its business. While it’s not necessary to file it, California requires having one in place and easily accessible. Having a written operating agreement is important because it can help settle disputes and prevent legal action over financial agreements. Without an agreement, state law will dictate how disputes are resolved, which may not benefit the LLC and its members. The operating agreement can include, but is not limited to, the following:

• LLC’s name and principal address
• Duration of the LLC
• Name and address of the registered agent
• Information about the Articles of Organization
• Purpose of the business
• Members and their contribution
• The way profits and losses will be divided
• Procedure for admitting new members, as well as outgoing members
• Management of the LLC
• Indemnification and liability clauses

6. File The Biennial Statement of Information

If you’ve registered an LLC in California, whether you’re from the state or not, you need to file a document called the Statement of Information (Form LLC-12) with the California Secretary of State within 90 days of filing your articles of organization. Every two years after that, you need to file another Statement of Information. You can file this document online or print it out and deliver it in person or by mail. The filing fee is $20. The document should cover the calendar month of your original articles of organization and the five months before that period. The information you need to include is standard and available on the instructions provided for the form. Below is an overview:

• The LLC’s name and California Secretary of State file number
• The name and address of the LLC’s agent for service of process
• The street address of the LLC’s principal executive office
• The LLC’s mailing address, if different from the street address of its principal executive office
• The name and complete business or residence addresses of any manager or managers and chief executive officer, if any; if no manager has been elected or appointed, the name and business or residence address of each member
• A valid email address, if the LLC chooses to receive renewal notices and any other notifications from the Secretary of State by electronic mail instead of by United States mail, and
• the general type of business that is the LLC’s principal business activity.

7. Pay Your California State Tax Obligations

When LLCs and foreign LLCs are based in California, registered in California, or operate in California, they have to pay California taxes to the California Franchise Tax Board (FTB). However, if they have elected to be taxed as a partnership or sole proprietorship (disregarded entities), they do not need to pay corporate taxes but still have to pay California taxes. If they are taxed as corporations, then they must follow California’s corporate tax rules.

For any LLC formed in California in 2021, 2022, or 2023, there is a one-year exemption — available for the LLC’s first taxable year — from California state’s $800 minimum annual franchise tax. Starting in the second taxable year, all LLCs would be subject to the annual $800 annual minimum franchise tax until they formally dissolve. The purpose for the exemption is to temporarily ease the burden of forming a new business in California.

• Annual Minimum Tax: In California, every LLC that conducts business must pay a minimum franchise tax of $800 each year. To pay this tax, you must fill out Form 3522, also known as the Limited Liability Company Tax Voucher, and submit it to the Franchise Tax Board.
• Additional Taxes: When an LLC’s net income exceeds $250,000, they are required to pay an extra fee depending on their overall annual income.
• Filing Procedures: All California LLCs are required to submit their income tax return using California Form 568 called Limited Liability Company Return of Income. The deadline for filing this form is on April 15th, which is the 15th day of the 4th month after the end of the LLC’s taxable year. You can download the Limited Liability Company Tax Booklet that contains Forms 568 and 3522 from the California Franchise Tax Board’s website.

8. Comply With Other Tax and Regulatory Requirements

A California LLC must meet any other tax and regulatory obligations that are applicable. These obligations may entail:

• EIN: If your LLC has multiple members, you need to get an IRS Employer Identification Number (EIN), even if there are no employees. For a one-member LLC, an EIN is necessary only if there are employees or if it’s being taxed as a corporation instead of a sole proprietorship. You can obtain an EIN by completing an online application on the IRS website or by filing IRS Form SS-4. No filing fee is required.
• Business Licenses: To find out if your LLC needs additional local and state business licenses based on its location and industry, visit the California Office of Business and Economic Development website’s CalGold section.
• Sales and Employer Taxes: If you plan on selling goods and collecting sales tax or hiring employees, you must register with the appropriate California taxing authority. For example, if you will be collecting sales tax, you’ll have to register with the California State Board of Equalization (BOE), which you can do online or in person at a BOE field office. For employer taxes, register with the California Employment Development Department (EDD).