How to start an LLC in California

How to start an LLC in California

There are several benefits that you will get if your business is a limited liability company (LLC). They include tax advantages, liability protection, etc.

Checklist For starting An LLC In California


Starting an LLC might be difficult if you don't know how to go about it. If you have made up your mind that an LLC is the type of business structure that you need, this article will guide you on how to start an LLC in California.

1. Name your California LLC


Before registering your LLC, you must decide on a name to use in your articles.

The regulations for naming in California must be followed. The following criteria are the most crucial ones to remember:
  1. The terms LLC or Limited Liability Company must appear in your business name.
  2. Your name must not be already taken by a company in the state. Visit the official website of the Secretary of State to check if your business name is available. Click on this link to check name availability.
  3. No words that identify a government agency may be used in the company name. For instance, CIA, FBI, State Department, Treasury, and many more.
  4. It may be necessary to submit additional paperwork and license applications in order to use restricted words like "bank," "lawyer," "credit union," and similar terms.

Further considerations:

  1. URL availability: You will need a website for your business. Though you might think that it is unnecessary at the moment. By purchasing your domain name today, you should, at the very least, give yourself the option of owning one later. Check if the URL is available before deciding on your LLC name.
  2. Reserve your name: If your LLC is not ready for registration, but you are scared that someone may take the name. You can reserve it for a fee.

You have the right to reserve names in California for up to 60 days by paying the charges and submitting the right documents to the state agency in charge.

2. Choose your registered agent


In California, you must have a registered agent for your LLC. The role of a registered agent is to accept notice, service of process, and other formal legal documents on behalf of your LLC.

This is the individual or entity that will be sent legal documents, official communications, tax forms, and notices of lawsuits filed on behalf of the LLC.

Any individual or organization that provides a registered agent service, such as you or a member of your LLC, can serve as a registered agent.

They must adhere to the following requirements:
  1. Companies or entities must offer registered agent services.
  2. The registered agent is required to have an address in California.
  3. The agent must be present and ready to accept documents during  business hours.

3. Prepare and file articles of organization


Your LLC is not complete without the articles of organization. It is a document that formally creates your LLC and provides the fundamental details about it. You can file the articles of organization in California with Form LLC-1

To register your California LLC, draft Articles of Organization and submit them to the California Secretary of State.

This may seem like a lot of work. However, all you have to do is to complete and submit a straightforward online form. You can mail it as well.

The following details are typically required to prepare your articles:
  1. Name and address of your LLC
  2. The purpose of establishing the LLC.
  3. The name and business address of your registered agent.
  4. Management structure: Who should manage the LLC? Its members or managers?
  5. The owner of the LLC must sign the articles

The secretary of state will review your articles after you have filed them. The LLC becomes an officially recognized business entity if the articles are accepted. In California, you can apply for an LLC in person, online, or via normal mail.

4. Receive a certificate from the state


Upon filing and approval of the LLC's formation documents, the state will grant you a certificate stating the LLC is legally recognized. The easiest way to get your certificate is by filing online.

Having this certificate will enable the LLC to open a business bank account, licenses, and an Employer Identification Number (EIN).

5. Create an operating agreement


An operating agreement is important for your LLC. It is a legal document that describes how your LLC will operate. An operating agreement is a requirement in California, but you can decide not to file it. It should be easily reachable.

A formal operating agreement is beneficial for several reasons, including resolving disagreements that can arise over financial arrangements and other potential legal action.

In the absence of an agreement, the courts decide cases based on state law, not always what is best for the company and its members.

The following are just a few contents of an operating agreement:
  1. Name and primary address of LLC
  2. Duration of the LLC
  3. Contact information for the registered agent
  4. Details regarding the Articles of Organization
  5. Objectives of setting up the business
  6. Names of members and their contribution
  7. Profits and losses sharing formula
  8. Procedure for both new member admission and member exit
  9. Management of the LLC
  10. Liability and indemnification clauses

6. File a statement of information


Within 90 days of its formation, all California LLCs must file a Statement of Information to the secretary of State of California.

The contents of the Statement of Information include:
  1. The name of the LLC and its California Secretary of State file number
  2. Name and address of LLC agent
  3. Address of LLC's main office
  4. Mailing address for LLC
  5. The name and full residential or office address of the CEO or any manager. In the absence of a manager, write the names and residential or office addresses of each member.
  6. The email address of LLC
  7. The primary business activity of LLC

7. Get an employer identification number


The Internal Revenue Service (IRS) assigns your LLC an Employer Identification Number (EIN) for tax purposes. You can get this nine-digit number online or by mail through the IRS.

The following are some things that an EIN can help with:
  1. State and federal tax filing and management.
  2. Open a bank account for your business.
  3. Employ staff.

8. Pay the annual franchise tax


An LLC must pay a $800 franchise tax fee to operate legally in California. This charge is payable annually and must be paid whether or not the firm generates any revenue.

There is also an extra annual charge needed if the gross annual revenues of your LLC surpass $250,000. For LLCs established in California in 2021, 2022, or 2023, there is an exemption.

The $800 minimum annual franchise tax imposed by the state of California is waived for the first taxable year for an LLC that registers or plans to do business in California under the new legislation.

Under the new legislation, the $800 minimum annual franchise tax imposed by the state of California is waived for the first taxable year for an LLC that registers or plans to do business in California.

9. Review business insurance options


Despite the fact that an LLC is meant to give you certain legal protection, it's typically a good idea to get other insurance policies, such as:
  1. General liability insurance
  2. Worker’s compensation insurance
  3. Professional liability insurance

The California Department of Insurance can provide guidance regarding the best insurance coverage for your company.

10. Market your LLC


Your new company needs marketing to get new clients. You can start the marketing aspect while waiting for other LLC registration processes to be completed.

Your company can be better prepared to start growing with a thorough marketing strategy once it is ready to be fully functioning.

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