How to Form an LLC in California in 7 Steps
The steps for setting up a limited liability company (LLC) in California include choosing a name for your LLC, naming a registered agent, filing articles of organization, getting an EIN from the IRS, and applying for business and tax accounts as well as obtaining licenses and permits.
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Setting up a limited liability company (LLC) in California is a great way to start your new business and provide liability protection for your personal assets. This article is a step-by-step guide to forming an LLC in California and includes information regarding relevant laws for California LLC formation.
7 Steps to Form an LLC in California
Name Your LLC
A California limited liability company should have a unique LLC business name per Cal Corp Code §17701.08(b). The name must be distinguishable from an existing registered entity of the same type. Meaning it must be different from other registered LLC names. To determine if your proposed business name is registered, go to the California Secretary of State Business Search website and search for name availability. If the name you want is not on the website, it is available for use.
Creating Your Business Name
In California, under Cal Corp Code §17701.08(a), an LLC’s name must meet the following California business name regulations:
- The name must include the words “Limited Liability Company” or contain an abbreviation such as LLC or L.L.C. You can use the abbreviations “Ltd.” for “Limited” and “Co.” for “Company.”
- The name can’t include the words “bank,” “trust,” “corporation,” “corp.,” “incorporated,” or “inc.”
- The name cannot be misleading to the public. For example, naming your LLC to suggest it is a bank, insurance company, or government-run entity.
Protecting Your Business Name
- Reserving Your Name: Under Cal Corp Code §17701.09, if you aren’t ready to file your California articles of organization, you can still reserve your business name for 60 days with the California Secretary of State business entity name reservation form.
- Trademarking Your Name: Another way to protect your company name is to file a California trademark or service mark application with the Secretary of State. If you have the trademark for your company, you are protected from other businesses using your name or logo.
- Registering Your Domain Name: Almost all business today is conducted online, so a unique website is essential for any business. First, perform a name search for your business online to see if it is available. If not, register your domain name so another entity can’t use it.
Choose a Registered Agent
A registered agent is a person or company designated to accept legal papers for your business, including service of process, the California annual reports, and certificates of good standing. In California, under Cal Corp Code §17701.13, the registered agent must be:
- Located in California
- Available during regular business hours
- Able to accept mail, legal documents, and service of process
Your registered agent’s name and address appear on the articles of organization, which is a public record. You can ask a registered agent service company to serve your registered agent with their office address. The advantage is that they keep your personal information private and your LLC in good standing.
File Articles of Organization
Articles of organization outline your business structure. You draft and file the LLC articles of organization with the California Secretary of State and per Cal Corp Code §17702.01, include the following:
- Name of the LLC
- Purpose of the LLC
- The management structure of the LLC
- The business address of the LLC (physical address, not a P.O. Box)
- Name and address of the registered agent
You can complete form LLC-1 with the California Secretary of State online. Or mail or hand-deliver the form to the California Secretary of State’s office. The filing fee is $70 (or $75 if requesting a certified copy of your articles of organization).
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Draft an Operating Agreement
An LLC operating agreement for an LLC describes how the company governs and makes decisions, similar to corporate bylaws. California requires an LLC to have an operating agreement, but you don’t have to file it with the Secretary of State. Your operating agreement defines your business structure and the organization of members and managers. Banks, lenders, and investors may request a copy of your operating agreement.
Get an EIN
Apply for an Employer Identification Number (EIN). An EIN is like a Social Security Number for your business. An EIN will allow your LLC to file taxes and open a small business bank account. It also establishes your business as an independent entity. You can apply for an EIN online with the Internal Revenue Service (IRS) or file IRS form SS-4 by mail or fax. The response time depends on how you apply. If you apply online, you will receive an immediate reply. 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 after 4-5 weeks.
Set Up Business and Tax Accounts
Once your California LLC is up and running, you need to keep your LLC compliant with California law. Compliance includes annual reporting and paying state fees and taxes.
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 organization. A statement of information contains general information about the LLC and is also known as a Biennial Report because you file the statement every two years. The filing fee is $20. A statement of information must include the following:
- Name of the LLC
- LLC’s street address
- LLC’s mailing address
- Name and address of the registered agent
- Name of the manager(s) and their business addresses and residential addresses
- Email address to receive electronic communication from the California Secretary of State
- LLC’s California Secretary of State file number
- Statement of the LLC’s purpose
Check for Additional Federal or State Requirements
Check state and federal websites to determine if there are any specific rules for your business. For example, some LLCs may have to file a Beneficial Ownership Information Report (BOIR) with FinCEN. Under current law, LLCs created in the United States are “domestic reporting companies” and are exempt from the BOIR requirement.
However, laws may change, so stay up to date with state and federal requirements.
Business and Tax Requirements in California
When starting a new business, you must register for business and tax accounts. You may need permits to operate your business. If you have employees, you must also set up employer accounts in California.
State Business Tax
If you elect to treat your LLC as a corporation for tax purposes, you pay a flat corporate income tax of 8.84%. However, most entrepreneurs form LLCs for pass-through taxation, so they avoid corporate income tax.
State Employment Tax
If your LLC hires employees, you must pay payroll taxes to the California Employment Development Department (EDD). Payroll taxes include employee withholding, unemployment insurance, and disability insurance.
Sales and Use Tax
If you sell products in California, you must register for a California seller’s permit and collect a sales or use tax. You charge that sales tax to your customer and collect it for the state.
Business Licenses and Permits
California requires business owners to have a proper business license to operate within the state. Depending on your type of business, you may also need special permits, for example, if you serve food or provide services to the public. Having appropriate permits and licensure is crucial because failing to get them may result in expensive fines. California has a professional licensure guide to determine if your industry needs a license.
Registration in Other States
If you plan for your LLC to do business in other states, contact the secretary of state in that jurisdiction to register as a foreign LLC. That state may ask for a certificate of good standing (California calls it a certificate of status), which you can get from the Secretary of State. The certificate shows your LLC is current and compliant with state law.
Annual Requirements in California
To keep your California LLC in good standing, you must file:
Annual Franchise Tax Reports
The California Franchise Tax Board requires filing a California LLC franchise tax report and paying a franchise tax of $800 per year. Franchise taxes are also called privilege taxes for the ‘privilege’ of operating within the state. The franchise tax does not replace federal and state taxes.
The first year annual tax is due on the 15th day of the 4th month after the date you file. For example, if you file your LLC on June 1st, you have until September 15th to file the franchise tax. LLCs must file the franchise tax report and pay the fee each year thereafter on the 15th day of the 4th month of the LLC’s taxable year.
If the LLC income in California is over $250,000, the fees increase based on total income.
Biennial Reports
Biennial reports update your LLC information with the Secretary of State. You file your first report no later than 90 days after your LLC’s formation date. You can complete the Statement of Information (Form LLC-12) or file it online. There is a $20 fee for the report. Then you must file the statement of information every two years. The filing period is during the 6-month window before the last day of the month of your LLC formation date.
FAQs
FAQs About California LLC Formation
The state filing fee for LLC Articles of Organization is $70 (or $75 if requesting a certified copy).
- Single-member LLC. California allows single-member LLCs (SMLLC) to operate within the state. As the name suggests, an SMLLC is a limited liability company with only one member. SMLLCs have the exact filing requirements as multi-member LLCs. You file articles of organization using Form LLC-1 and pay the $70 filing fee. In addition, California requires single-member LLCs to file Form 568.
- Multi-member LLC. Multi-member LLCs are also allowed in California. Multiple people or "members" can own the LLC. The members name a person or a group of people as "manager-members" to operate the LLC.
- But Not Professional LLCs. In most states, licensed professionals can form professional limited liability companies or PLLCs. However, California does not offer this classification. Professionals can create a professional corporation (PC) or a registered limited liability company (RLLP). The RLLP is only available for attorneys, architects, land surveyors, engineering, and public accountancy.
Your California articles of organization is proof of your LLC’s existence. A bank, lender, or licensing agency may request a copy for their files. When filing your articles of organization in California, ordering a certified copy is a good idea. The certified copy fee is an additional $5.
A certificate of status verifies that your LLC’s organization complies with state law and your LLC is authorized to operate in California. Other states refer to a certificate of status as a certificate of good standing. Depending on your business activities, you may need a certificate of status to:
- Get a bank loan
- Set up a merchant account to process credit or debit cards
- Apply for credit
- Register to do business in another state
You can order your California certificate of status online. The fee is $5. The state will not issue the certificate if you are behind in franchise tax payments or annual reporting requirements.
In California, you need the following to create a limited liability company:
- Acceptable LLC business name
- The physical address of the business (not a P.O. Box)
- Registered agent name and physical address (not a P.O. Box)
- Completed LLC-1 form
- Payment of the $70 state fee
An LLC or "limited liability company" is a unique business structure combining the best elements of both corporations and partnerships. An LLC has "pass-through" taxation similar to a sole proprietorship or partnership. LLC also shields personal assets from the company’s debts and lawsuits like a corporation. Without this personal liability protection, LLC owners could lose personal assets in a lawsuit against the company.
Once you set up your LLC, you must take the following steps to keep it in good standing with the California Secretary of State:
- Pay the $800 California state franchise tax fee.
- File a biennial statement of information with the $20 fee.
The articles of organization is the initial filing establishing your legal business entity in California. The operating agreement outlines the LLC’s management structure, members’ rights and duties, profit-sharing, and dissolution procedures. The operating agreement is an internal company document, whereas the articles of organization is a public record with the California Secretary of State.
Many entrepreneurs set up an LLC with a generic name or personal name and then register for a fictitious business name (FBN) or "doing business as" (DBA) name. To register for an FBN/DBA:
- Conduct a name search with the Secretary of State to ensure the fictitious name is available.
- File a DBA application at your county clerk’s office.
- Publish a notice of the name based on your county’s requirements.
The county clerk will charge a fee for the initial filing. There may be renewal fees for your fictitious name.
The state of California does not issue a general business license. However, depending on your profession, you may need professional, municipal, or occupational licenses. Check if your business must apply for federal, state, or municipal permits.
Yes. You can apply to the California Secretary of State or use an online business formation service.
To submit the legal documents in person or by mail, the Secretary of State’s address is 1500 11th Street, Sacramento, CA 95814.
A registered agent serves as your LLC’s point of contact with the Secretary of State. Registered agent service companies provide several benefits for your LLC. They can help set up your LLC by drafting and filing your articles of organization and maintaining the status of your LLC. There are other benefits of using a registered agent service:
- Privacy: The agent’s address accepts service of process, so lawsuits are served with them, not your business.
- Compliance: They notify you of annual reporting and tax deadlines. Missing these critical deadlines is costly and jeopardizes your LLC status with the state of California.
- Backup: Registered agents assist with LLC paperwork and documents you may need (i.e., copies of your articles of organization, certificate of good standing).
A domestic LLC is a limited liability company formed in California. Once the California Secretary of State accepts the Articles of Organization, the LLC is a domestic LLC.
If you want your LLC to do business in another state, you must apply as a foreign LLC in that new jurisdiction. First, check that your California LLC is in good standing. You can request a certificate of status from the California Secretary of State. Then you can register as a foreign business entity by doing the following:
- Determine if your LLC name is available in the new state
- Produce a certificate of status for your California LLC
- File an application as a foreign LLC
- Pay the state filing fee
California allows foreign LLCs to operate within the state. A foreign LLC is an LLC incorporated in a state other than California. To operate a foreign LLC in California, you must register the LLC with the California Secretary of State.
- File an application to register a foreign limited liability company online
- Submit with a certificate of good standing (or your state’s equivalent) from your home state
- Pay the $70 application fee
The name of your LLC must be available for use in California, so check the California business name database.
There are specific steps to dissolve your LLC in California:
- Close and settle all LLC tax and business accounts.
- File a certificate of dissolution (Form LLC-3). However, you don’t have to file a certificate if all LLC members unanimously agree to the dissolution. Members of the LLC sign articles of dissolution stating they approve of the dissolution. Then they file the articles of dissolution with the California Secretary of State. All franchise taxes and fees must be current.
- File a certificate of cancellation (Form LLC-4) with the California Secretary of State.
The fee for dissolving an LLC in person is $15. If you want a certified copy, the fee is for $5 each form.
An anonymous LLC does not disclose the LLC members’ names in the articles of organization which is a public record. The names of your registered agent and the LLC organizer appear on the articles of organization. California doesn’t offer an anonymous LLC. Only a few states do which are Delaware, Nevada, New Mexico, and Wyoming.
Disclaimer: The information presented here does not constitute legal advice or representation. It is general and educational in nature, may not reflect all recent legal developments, and may not apply to your unique facts and circumstances. Consider consulting with a qualified business attorney if you have legal questions.
How to Start an LLC in Other U.S. States
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- Alabama
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- Colorado
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- Delaware
- Washington DC
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- Iowa
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- Kentucky
- Louisiana
- Maine
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- New Jersey
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- North Carolina
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- Ohio
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- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
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