California may be one of the best states to start an LLC. The state has several large cities with growing populations, which may be right for you to start your LLC.
While it only takes six steps to start an LLC in California, there are a few essential things you need to know. Some steps require additional information, and you can complete a few forms online. Here are the six steps to start an LLC in California.
What are the benefits of starting an LLC in California?
If you want to start an LLC in California, there are several benefits. California offers a large workforce, many industries, and a robust economy, which may make starting an LLC in California a great decision.
Other benefits of starting an LLC in California are:
- Asset protection
- Limited liability for members
- Pass-through taxation
- Management structure
How to start an LLC in California
There are steps you’ll complete to start your LLC in California.
Step 1: Name Your LLC
The first step to start an LLC in California is to name your LLC. Your LLC name must be distinguishable from other business names with the California Secretary of State.
To see if your LLC name is available, you’ll search the California Business Search records. After determining if your business name is available, you have the option to reserve your business name for a fee.
Finding a unique brand name and (normal-looking) domain to go with it can be a bit of a time-sink for new business owners. This free tool from Business Name Zone generates name and domain combos for you based on your input – and it only takes a few minutes.
Step 2: Get an EIN
The second step to start an EIN in California is to get an EIN. There are several options to get your EIN, but it’s free no matter which option you choose. You can apply by fax, by mail, or online:
- Applying online is the fastest option to receive an EIN. You can receive an EIN immediately after your application, but you must complete the application in one session.
- If you apply by fax and provide a phone number, it can take four business days to receive an EIN.
- It takes up to four weeks to receive an EIN by mail.
Step 3: Registered Agent
The third step to start an LLC in California is to meet the registered agent requirement. In California, registered agents are known as an agent for service of process. An agent for service of process can be a corporation or an individual.
If the agent for service of process is a corporation, the corporation must have filed a Registered Corporate Agent for Service of Process Certificate or Form 1505. If the agent for service of process is an individual, the individual must live in California.
Step 4: File Articles of Organization
Fourth, you’ll file Articles of Organization. You’ll provide your:
- LLC name
- LLC information (address, city, zip code of initial designated office)
- Agent for Service of Process
- Management option
- Purpose statement
- Signatures (of each person responsible for forming the LLC)
You can file Articles of Organization online.
Step 5: File Initial Statement of Information
One of the last steps to start an LLC in California is to file your initial Statement of Information. The state of California has three requirements for the Statement of Information:
- You’ll complete the Statement of Information within the first 90 days of filing your Articles of Organization.
- After filing your initial Statement of Information, it’s due every two years.
- It will be due either every odd year or every even year based on the year of your initial registration.
Step 6: Create Operating Agreement
The last step to start an LLC in California is to create an operating agreement. LLCs in California have a requirement to maintain operating agreements, but LLCs aren’t required to file it with the Secretary of State.
An operating agreement will contain the LLCs:
- Basic Information
- Contributions, Interest, Members
- Management Information
- Leaving or Terminating Information
- Liability Clauses
- Miscellaneous Sections
Some of the basic information you’ll need for your LLC will include your LLC name, Articles of Organization information, and registered agent information. You’ll also need to provide the duration of your LLC, registered agent information (address and name), and the purpose of your LLC.
Next, in the operating agreement, you’ll provide contributions, interest, and member information. You’ll want to focus on:
- Admission of new members
- Contribution amounts
- How members receive losses and profits
- How taxes on distributions are allocated and distributed
- Initial capital contributions and amount required per member
- Ownership interest (percentage)
Third, you’ll choose your management structure. You can operate an LLC as member-managed or with a manager. The operating agreement should also include information about what the LLC will do if a member leaves or if the LLC ends.
Fifth, the operating agreement should also include a liability clause explaining how the members have limited liability. Finally, the operating agreement should contain miscellaneous information, which may include:
- A conflict of interest policy
- A non-compete agreement
- A non-disclosure agreement
There are two additional considerations you’ll need to think about as you start your LLC in California: biennial reports and membership structure.
Manager or Member Management
The first consideration you’ll need to make is how you’ll manage your LLC. You have two options, either a manager or member-managed.
If your LLC is member-managed, it will include a single managing member. If a manager manages the LLC, a hired manager who is an employee will manage the LLC.
The second consideration you’ll make is to complete the Biennial Report in compliance with the Statement of Information requirement.
You’ll complete the Biennial Report every two years after the year of initial registration.
How much does it cost to form an LLC in California?
It costs about $900 to form an LLC in California. The Articles of Organization, Franchise Tax, and Statement of Information fees are all required.
However, there’s an optional fee for name reservation, and no fee for the Operating Agreement.
How long does it cost to form an LLC in California?
It may take a few weeks to form an LLC in California. You may submit some of the required forms online to the California Secretary of State, who can process your documents.
Submitting documents online may save time compared to submitting documents by mail.
LLC fees in California
California has several LLC fees: Articles of Organization, a franchise tax, name reservation fee, Operation Agreement costs, and a Statement of Information fee.
Articles of Organization
The first fee you’ll pay to start an LLC in California is for the Articles of Organization. There’s a fee of $70.00 to file Articles of Organization, and you have the option to file online.
The franchise tax is an annual tax an LLC in California will pay, even if the LLC isn’t conducting business. All LLCs will pay the annual tax, which is $800, due the 15th day of the fourth month from the date you file with the Secretary of State.
LLCs will pay this annual tax until it’s canceled. You’ll submit the annual tax with an LLC Tax Voucher (FTB 3522) if you apply by mail. You won’t need to file Form FTB 3522 if you pay the annual tax online.
Name Reservation Costs
The third fee you’ll pay to start an LLC in California is the name reservation fee. If your business name is distinguishable from other names in the California Secretary of State records, you can reserve your business name,
You’ll pay $10.00 to reserve a business name (this is an optional fee.)
Operating Agreement Costs
LLC members will make an Operating Agreement for their LLC. There’s no requirement to file Operating Agreements with the Secretary of State, but there may be costs if you choose a template.
Statement of Information
The last fee you’ll pay to start an LLC in California is for the Statement of Information.
There’s a fee of $20.00 to file the Statement of Information. You have the option to file the Statement of Information online.
Let Us Help You Start An LLC In California
Starting an LLC in California may be right for you. The state offers opportunities for growth in almost every industry, and forming an LLC provides a chance for your business to thrive.
When it’s time to start your LLC in California, it should never be overwhelming or stressful. Work with the pros at 1-800Accountant to start an LLC in California.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.