How to start an LLC in California

A limited liability company (LLC) offers liability protection and tax advantages, among other benefits for small businesses. 

If you've determined an LLC is the right business structure for your needs, follow these eight simple steps to get your California LLC up and running.

1. Name your California LLC

You'll need to choose a name to include in your articles before you can register your LLC.

Names must comply with California's naming requirements. The following are the most important requirements to keep in mind:

• Your business name must include the words Limited Liability Company, LLC, or L.L.C.
• Your name must be different from an existing business in the state. You can conduct a search on the Secretary of State's website to determine if a particular business name is in use.
• The business name cannot contain words used to name a government agency (i.e., State Department, CIA, FBI, Treasury, etc.)

• Certain restricted words (bank, lawyer, attorney, credit union, etc.) may require additional documentation and licensure paperwork.

Additional considerations:

• URL availability. Even if you don't think you'll need a webpage, you probably will. At the very least, you should reserve the option of having one in the future by buying your domain name now. Before finalizing your LLC name, it's a good idea to check if the URL is available.
• Reserve your name. If you aren't ready to register your LLC but are concerned your name might be taken by someone else, you can reserve it for a small fee. In California, names may be reserved for up to 60 days by paying the fee and submitting the proper form to the state authority.

2. Choose your registered agent

California requires you to appoint a registered agent for your LLC.

A registered agent is a person or entity authorized to receive service of process and other official legal documents and notices on behalf of your LLC. This is the person or entity who will receive legal documents, government correspondence, tax forms, as well as notice of lawsuits on the LLC's behalf.

A registered agent can be a person (including yourself or an employee of your LLC) or an entity that offers a registered agent service. They must meet the following criteria:

• Entities (or companies) must provide registered agent services.
• The agent must have an address in California.
• The agent must be on-site and available to accept documents during regular business hours.

3. Prepare and file articles of organization

The Articles of Organization is a document that officially establishes your LLC by laying out basic information about it. In California, Articles of Organization can be filed with Form LLC-1.

Prepare Articles of Organization and file them with the California Secretary of State to properly register your California LLC. Though it sounds like a big job, that simply means filling out a relatively simple online form and submitting it. You can also send it by mail.

To prepare your articles, you'll usually need the following information:

• Your LLC name and address
• The purpose of the LLC.
• The name and address of your registered agent.
• Management structure: Will its members or managers manage the LLC?
• The person forming the LLC is required to sign the Articles.

Once you file your Articles, the secretary of state will review the filing. If the articles are approved, the LLC becomes a legal business entity. In California, you submit your application via regular mail, online, or in person.

4. Receive a certificate from the state

The state will issue you a certificate that confirms the LLC formally exists after the LLC's formation documents are filed and approved. Filing online is the quickest way to receive your certificate.

This certificate will allow the LLC to obtain an Employer Identification Number (EIN), business licenses, and business bank account.

5. Create an operating agreement

An operating agreement is a document that outlines the way your LLC will conduct business.

California requires an LLC to have an operating agreement, but it doesn't have to be filed. It should be readily accessible. A written operating agreement is helpful for various reasons, including settling disputes that may arise over financial agreements and other potential litigation. Without an agreement in place, the courts make determinations based on state law, not necessarily what is in the best interest of 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 a statement of information

All California LLCs are required to file a Statement of Information with the California Secretary of State within 90 days of forming the LLC.

A Statement of Information includes the following:

• LLC's name and California Secretary of State file number
• LLC's agent name and address
• LLC's principal executive office address
• LLC's mailing address
• Name and complete business or residence address of any manager or chief executive officer or if no manager is elected, the name and business or residence address of each member.
• LLC's email address (if the LLC chooses to receive renewals via email instead of regular mail)
• LLC's principal business activity

7. Get an employer identification number

The nine-digit Employer Identification Number (EIN) is assigned by the Internal Revenue Service to identify your LLC for taxes. You can obtain your EIN by mail or online through the IRS.

The purpose of an EIN is to assist with the following:

• File and manage taxes at the state and federal level
• Open a business bank account.
• Hire employees.

8. Pay the annual franchise tax

To do business in California, an LLC must pay an $800 franchise tax fee. This fee must be paid regardless of whether the business makes any income and is due every year.

If your LLC's annual gross revenues exceed $250,000, an additional annual fee is also required.

There is an exemption for LLCs formed in California in 2021, 2022, or 2023. Under the new legislation, an LLC that registers or organizes to do business in California is exempt from the state's $800 minimum annual franchise tax for its first taxable year. In the second taxable year, the LLC must pay the $800 fee.

Next steps

Registering your LLC gives you a legal foundation to conduct business. Plan to keep your LLC compliant and in active status on the state's website.

Every LLC transacting business in California must file a biennial report (also called a Statement of Information) with the Secretary of State and pay a fee. You must file the report every two years during a six-month" filing window," which is based on the month the LLC was formed.

The LLC must pay tax payments. If you have employees in your LLC, you must register with the California Employer Development Department and pay requisite employer taxes. If your LLC will be selling goods and collecting sales tax, you'll need to register with the appropriate California taxing authority. If you're collecting a sales tax, you must register with the California State Board of Equalization.

You also need to maintain a registered agent for your business.

A registered LLC also makes it possible for you to do the following:

• Obtain permits or licenses necessary to operate your business, including health department permits, zoning permits, home occupation permits, professional licenses, and more. Some states require a seller's permit to conduct sales.
• Register your business with the state's tax agency.
• Open a business bank account.
• Apply for a business credit card.
• Purchase insurance for your business.
• Protect your name and logo with a trademark.

What is the cost to file an LLC in California?

Here's a closer look and breakdown of all the fees required to form an LLC in California.

Reservation fee

You can file a $10 name reservation request to reserve your LLC name for a period of 60 days before registering it. Although this fee isn't required to register or form your LLC, a reservation might be a good idea to ensure you get the business name you want.

Statement of information fee

In California, all LLCs are required to file a statement of information within 90 days of registering an LLC. This can be filed online, in person, or via mail. The cost is $20. Failure to do so will result in a penalty.

A statement of information must be filed every two years, and a $20 fee is required each time.

Articles of organization fee

In order to form an LLC, most states require you to draft and file articles of organization. The articles of organization is a document that officially establishes your LLC by laying out basic information about your business. You can file your Articles of Organization with the California Secretary of State for $70.

To do business in California, an LLC must pay an $800 franchise tax fee. This fee must be paid regardless of whether the business makes any income and is due every year.

If your LLC's annual gross revenues exceed $250,000, an additional annual fee is also required.

There is an exemption for LLCs formed in California in 2021, 2022, or 2023. Under the new legislation, an LLC that registers or organizes to do business in California is exempt from the state's $800 minimum annual franchise tax for its first taxable year. In the second taxable year, the LLC must pay the $800 fee.

Costs to register a foreign LLC in California

If you have an LLC registered in another state and have plans to expand your business in California, you will have to pay to register as a foreign LLC. The cost to register is $70.

Business permits/licenses

Depending on the nature of your business and geographical location, you may be required to obtain permits and licenses at the local or state level.

Filing an amendment to your articles of organization

An amendment to the Articles of Organization costs $30.

Obtaining certified copies

Sometimes it is necessary to obtain official copies of documents of business filings. The cost in California is $1 for the first page and $.50 for each additional page. There is a $5 certified fee, and if you request these documents in person, there is a $10 handling fee.

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