How to Form an LLC in California
If you're considering forming an LLC in California, it's helpful to understand the general structure of LLCs and specific information about California state laws that govern LLCs. This article explains how to form an LLC in California and includes information regarding relevant statutes and forms for California LLC formation.
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Step One: Choose a Name for Your California LLC
A California limited liability company should have a unique name. Each state has specific requirements for corporate names. In California, an LLC's name must meet these requirements:
- Must include the words "limited liability company" or contain an abbreviation (L.L.C., L.L.C., or Ltd. Co.)
- It cannot already be registered. To determine if your proposed business name is already registered, go to the California Secretary of State website and do a business entity name search. All small business names must be registered with the secretary of state, so you can be confident that if the name you want is not on the website, it is available for use.
- The name cannot be misleading and suggests that your business is a government-run entity.
Fictitious name: Filing "articles of incorporation" officially starts your LLC. If you are not ready to start your company but do not want to lose your name, you can reserve your name by filing the appropriate paperwork with the California Secretary of State.
Trademark name: Another way to protect your company name is to file a trademark application with the California Secretary of State. If you have the trademark for your company, you are protected from other businesses using your name or logo.
Domain name: Almost all business today is conducted online, so having a unique website is essential for any business. Search your business name online to see if it is taken.
Step Two: Appoint a Registered Agent
A registered agent is a person or company designated to accept legal papers for the business, including service of process. A registered agent must be in the state where the company is incorporated. Your registered agent's name must be listed in the articles of incorporation. Your registered agent must be available during regular business hours in most states, and the address must be recorded. Remember that the registered agent's residential address does not have to be listed. You can have a company P.O. box listed in the articles of incorporation.
Step Three: Draft an LLC Operating Agreement
An operating agreement is a document that lists how the company will make decisions. In an operating agreement, a company can explicitly state how the company will distribute shares and how the members will divide profits and losses. California does not require that an LLC file an operating agreement, but it is a good idea to write down how you want the company to distribute profits and losses and shares.
Step Four: File Articles of Organization
Filing "articles of organization" completes LLC formation for your California LLC. You will need to complete a Form LLC-1. Forms can be completed online, mailed, or hand-delivered to the California Secretary of State's office. The filing fee is $70.
The LLC's articles of organization must include:
- The name of the LLC
- The purpose of the LLC
- The management structure of the LLC
- The business address of the LLC
- The name and address of the registered agent
Step Five: File Statement of Information
California requires that every LLC files a Form LLC-12 with the secretary of state. A "statement of information" must be filed within 90 days of filing the LLC's articles of incorporation. A statement of information contains general information about the LLC and is also known as a Biennial Report because a statement must be filed every two years. The filing fee is $20.
A statement of information must include:
- The name of the LLC
- The LLC's street address
- The LLC's mailing address
- The name and address of the registered agent
- Name of the manager(s) and their business addresses and residential addresses
- An email address that can be used to receive electronic communication from the California Secretary of State
- The LLC's California Secretary of State file number
- A statement of the LLC's purpose
Step Six: Get an EIN
An EIN is an employer identification number. They are provided by the Internal Revenue Service (IRS). Having an EIN will allow your LLC to file taxes and open a small business bank account. Please keep in mind that applying for an EIN should always be free, and if you come across a website that charges a fee for applying for an EIN, that is not a legitimate service.
You can apply for an EIN for your LLC online, by phone, fax, or mail. The response time depends on how you apply. If you apply online, you will receive an immediate response from the IRS. An application by fax will receive an answer in 3-4 business days. An application sent to the IRS through the mail will typically receive a response from the IRS after 4-5 weeks.
Step Seven: Get Other Necessary Business Licenses and Permits
California requires business owners to have a proper business license to operate within the state. It is crucial to have appropriate permits and licensure because failing to get them may result in expensive fines.
Frequently Asked Questions
1. How much does it cost to form a California LLC?
An LLC becomes a legal entity once the Articles of Organization are filed with the secretary of state. The filing fee for Articles of Organization is $70. In addition to the filing fee for Articles of Organization, there is a $10 fee for reserving your business name. Lastly, there is a $20 fee to file the Statement of Information.
2. What is a franchise tax?
Franchise taxes are also called privilege taxes, and they are fees imposed by some states on businesses for the privilege of operating within the state. A franchise tax is paid annually in addition to federal and state income taxes. A franchise tax does not replace federal and state income taxes. California imposes an $800 franchise tax on limited liability companies.
In response to the COVID-19 pandemic, there is a one-year tax exemption for franchise taxes for new LLCs formed in 2021, 2022, and 2023. That means that new LLCs will have their first year's franchise tax waived and begin paying the $800 franchise tax the following calendar year.
3. Can I form a single-member LLC in California?
Yes, California allows single-member LLCs to operate within the state. A single-member LLC is a limited liability company that has only one member. Single-member LLCs have the exact filing requirements as multi-member LLCs. You will have to file articles of organization and pay the $70 filing fee. In addition, California requires single-member LLCs to file Form 568. Form 568 can be found here.
4. Can a foreign LLC do business in California?
Yes, California allows foreign LLCs to operate within the state. A foreign LLC is an LLC incorporated in a state other than California. To run a foreign LLC in California, you must register the LLC with the California Secretary of State.
5. How do I get an EIN if I don't have a Social Security Number?
You do not need a social security number to get an EIN. The IRS only requires a social security number if the LLC applies online. If you apply via mail or fax, you will not be required to present a social security number.
6. Can I use the same EIN for my LLC that I already have for my sole proprietorship?
No. An EIN operates as a unique identification number, much like a social security number. Therefore, if you have different business entities, you will need a separate EIN for each business.
7. Can I file a professional LLC in California?
Yes, you can form a professional LLC in California. A professional LLC (PLLC) is like any other limited liability company, but PLLCs are specifically for those who hold a professional license. Professionals forming a PLLC include realtors, lawyers, accountants, and others. Every member must have a current professional license in their field. If you and your members meet these qualifications, you can form a PLLC by filing the Articles of Organization with the secretary of state and paying the $70 filing fee.
8. How do I dissolve an LLC in California?
For an LLC to close, specific steps must be taken. Winding up refers to the process of dissolving a limited liability company. A detailed checklist of what must be done to complete the winding-up process can be found here.
Need Help Forming a California LLC?
Fortunately, forming an LLC in California can be a straightforward process with FindLaw’s Business Formation Service. However, if you have specific questions concerning operating agreements, or have a complex formation issue, then professional legal help is available. Connect with an experienced California attorney to help you get your business off on the right foot.
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