How to start an LLC in California
- Consider using an LLC service
- Select an available business name
- Appoint an Agent of Service of Process (Registered Agent)
- Draft an Operating Agreement
- File Articles of Organization
- Wait for your documents
- Obtain an Employer Identification Number (EIN)
- File the Biennial Report
- File State Tax Obligations
- Keep your business in good standing
- Open a business bank account
Starting a new company can feel intimidating. Even just the legal process of forming a business entity with state agencies can be quite the task. Fortunately, with a bit of research, you can make the process much simpler. This guide will guide you through starting an LLC in the state of California, from start to finish.
A limited liability company, or LLC, is a very popular business structure for all types of different businesses. It’s popular mainly because it helps shield business owners from personal liability stemming from business activities. It’s also generally easier to form than a corporation (but more difficult than a sole proprietorship).
Each state has their own requirements and rules for LLC formation. To form a limited liability company in California, you’ll want to follow these steps.
Consider using an LLC service
The steps to start an LLC can be completed on your own. However, many business owners will prefer to use the services of a professional LLC formation service. Doing so can expedite the process, while also ensuring accuracy. For time-strapped entrepreneurs, the cost of using a service is well worth the investment.
LLC services such as Northwest Registered Agent, ZenBusiness, and IncFile can all help. These firms specialize in new business formation. They bridge the gap between you and the state agencies responsible for forming new business entities. Often, they can take a complex, outdated system and make it much easier to navigate.
These services can also be your Registered Agent (see step #3 below), which means that they can accept legal correspondence for your company. In California, Registered Agents are instead called Agent for Service of Process. Appointing an Agent is a requirement to form an LLC, although you can typically serve as your own agent. Using a professional service offers the benefit of never missing an important requirement; plus, it protects your privacy, as the Agent’s address will become public record.
Select an available business name
Next, it’s time to name your company. You must find a name that is not currently in use by another California company. You can search the business name database on the California Secretary of State website in order to confirm name availability.
There are certain rules that business owners must follow when naming a new LLC in California:
The company name must be distinguishable from all other established LLCs in California
The business name must end with “LLC” or “Limited Liability Company”. The abbreviations “Ltd.” and “Co.” are also acceptable.
The business name may not contain the words bank, trust, trustee, incorporated, inc., corporation, or corp.
The business name must not contain the words insurer or insurance company or any other words suggesting that it is in the business of issuing policies of insurance
If you find an available name but are not yet ready to commit, you can request to reserve the name by filing a Name Reservation Request by mail. The fee is $10, and this reserves the name for 60 days.
While selecting a business name is an important step, keep in mind that your formal LLC name can sometimes be different from the name you will actually do business under.
Using Fictitious Business Names (FBNs) or Doing Business As (DBAs)
Your LLC name will be the name displayed on your paperwork, and used for official correspondence and tax filings. However, in California, the use of Fictitious Business Names, otherwise known as Doing Business As names, is allowed.
Basically, DBAs allow you to select secondary names to do business with. For example, Smart Housekeeping, LLC could hold DBA names for “Bay Area Cleaners”, “Clean Green Cleaners”, or both.
These are handled on the county level, in the counties where business licenses are obtained and the LLC is actually doing business in. The state itself does not handle the process; so the election of DBAs is separate from the initial formation of an LLC. There is typically a small fee to register a DBA. More information can be found here.
Appoint an Agent of Service of Process (Registered Agent)
California requires that each LLC appoint what is known as an Agent of Service of Process. In most other states, this is referred to as a Registered Agent.
This agent is responsible for receiving legal correspondence for a company. Their address will be listed publicly on business licenses and in the state database. If a business is sued, or contacted by authorities, it is the Agent that will receive that correspondence.
The Agent must have a physical address (no PO boxes allowed) located in the state of California. The role can be filled by the owner of the company, a member of the LLC, an employee, or a professional registered agent service.
Draft an Operating Agreement
An LLC operating agreement is a document outlining how your business will be run and managed, and who owns the company. It’s an important legal document for most businesses. However, it’s an internal document, meaning that it’s simply kept on file by the business itself. As such, it’s not a requirement in the state of California, and you won’t need to submit it to any government agency.
To draft an operating agreement, you can use a service like ZenBusiness. Alternatively, you can hire an attorney, or simply use a template to draft your own.
File Articles of Organization
The process of forming an LLC (limited liability company) in California requires owners to fill out and file Articles of Organization. You can download forms to fill out here, to be submitted by mail. Or, you can submit an electronic version here.
The Articles of Organization must include the following information:
The name of the LLC
Its purpose/business category
Management information (member managed vs. manager managed)
Name and address of its registered agent
These documents are processed and approved by the California Secretary of State. There is a $70 filing fee, plus a $5 fee if you want a Certified Copy of the documents. Digital (emailed) document copies are free.
After this process, you’ll be able to obtain California business licenses on the county level. You’ll need to apply directly with the counties that you plan to do business in.
Wait for your documents
Once you have submitted the Articles of Organization, you’ll need to wait for California to process your application. In general, this takes 10-14 business days, although it can be longer in some cases. Expedited processing may also be available. California maintains a list of current processing times, which you can check to see how long it may take to process your paperwork.
Obtain an Employer Identification Number (EIN)
An Employer Identification Number, or EIN, is a federal tax ID number issued by the IRS. You can file for an EIN online at the Internal Revenue Service’s website. The application is free and takes only a few minutes.
EINs are required to hire employees, open business bank accounts, and several other key activities. This is handled on the federal level, not the state level, so it won’t be a part of the initial LLC formation process. Once your EIN is issued, this is the number that you will use on most federal tax returns and similar forms.
File the Biennial Report
Every California LLC (and foreign LLC doing business in the state) is required to file a Statement of Information (form LLC-12) every two years. It can also be filed online here. There is a $20 fee, which must be paid with a credit card (Visa or MasterCard) when filing online.
The initial report must be filled with the Secretary of State within the first 90 days after filing the Articles (see step #5). Further reports are required bi-annually (every two years).
These reports require the following information:
The name of the LLC
The file number issued by the Secretary of State
The name and physical address of the appointed Agent for Service of Process (registered agent)
The physical address of the primary LLC office
The LLC mailing address
Information about managers and management structure
A valid email address
The LLC’s primary category of business
California doesn’t require an annual report like many states do, but this report must be filed every two years. This is separate from state tax requirements (see below).
File State Tax Obligations
The California Franchise Tax Board (FTB) is the agency responsible for collecting state taxes in California. It is with this agency that you’ll need to file reports, including:
Annual Minimum Tax: California has a minimum annual tax for LLCs of $800. This tax is in place regardless of business size, revenue volume, etc. It can be filed using Form 3522, Limited Liability Company Tax Voucher.
Additional Taxes: For larger businesses with net income greater than $250,000, there will be additional taxes on top of the Annual Minimum Tax. The amount due will be calculated based on net income.
Annual Tax Return: California requires an annual tax return, usually due on the same day as your federal tax return. All LLCs must complete California Form 568, Limited Liability Company Return of Income. The due date is typically the 15th day of the 4th month after the close of the LLC’s taxable year (for most LLCs, this will be April 15th – the same day as federal tax returns are due).
Keep your business in good standing
There are many ongoing requirements and tax filings to stay on top of. This is true on every level: Local, state, and federal.
This can include filing biennial reports, annual reports, federal tax returns, state tax returns, sales tax returns, local tax returns, and more. You’ll need to obtain (and renew) business licenses on a county level, and you may need specialized permits or licenses in some cases.
This can all seem like a lot to manage, but the best thing to do is to start with a solid foundation. Research all the compliance requirements that you’ll need to stay on top of, and add reminders to your calendar now so that you don’t forget.
Open a business bank account
All small businesses should open a business bank account as soon as possible. You’ll need your business license, state documents, and federal EIN (see above), as well as funds for an opening deposit.
You’ll want to keep your business and personal finances as separate as possible. You can shop around to find the best account for your needs, or simply use a financial institution that you already have a relationship with.