This article will guide you through the process of creating an LLC in the state of California.
The first step to creating your LLC is naming your LLC. The name of your LLC should not be the same or even similar to, an existing name on the California Secretary of State’s records. You can check availability in the Business Search Database (for free) to verify if the name you have chosen is in no way similar to any other Californian LLC. You may also mail a completed Name Availability Inquiry Letter to the California secretary of State’s office. Also, you must keep in mind that the chosen name should never be misleading in any way to the public.
The name of your LLC should contain the words “Limited”, “Corporation”, “Incorporated” or their respective abbreviations (“Ltd.”, “Co.”, “Inc.”).
Once you find a name that is applicable, you can reserve it for 60 days by filing a Name Reservation Request Form with the Secretary of State. This form can only be handed in by mail or in person.
Next, file your articles of incorporation with the California Secretary of State´s office, Form LLC-1. These articles must include:
- Name
- Address
- Information on how it will be managed
- Purpose
- Name and address of the agent for service of process
The filing must be done either through mail or hand delivered. You must also pay a $70 USD fee.
The following step is appointing a registered agent. A registered agent is an individual or private company that agrees to accept legal documents on behalf of the LLC if it were to be sued. The agent may be either a person who resides in California or a corporate agent with a Registered Corporate Agent for Service of Process Certificate (form 1505) with the Secretary of State. This agent must have a physical address in California; a post office box is not permitted. If you can’t find a register agent, the California Secretary of State has a list of private service companies that will act as agent for service of process for a fee.
Once you have a registered agent, you must choose between having a member management or a manager management. Even though most small multi-member LLCs rather be managed directly by their members, you always have the option of appointing one or a group of managers to oversee the LLC. These managers can be compared to a board of directors. Their job can go everywhere between taking out loans, changing strategic plans or purchasing real estate with the majority of votes.
Continue by preparing an operating agreement. This is not a mandatory requirement, but it is commonly used in an LLC.
The next step is to file the statement of information, Form LLC-12, with the California Secretary of State. This is also known as the Biennial Report and it should be filed 90 days after filing the articles of organization. This report must include the LLC’s name and file number, name and address of the LLC’s agent for service, and physical address. It must also include the complete personal information of every manager (name and address), the activity the LLC is planning on exploiting, and a valid email address if the LLC decides to receive renewal notices from the Secretary of State.
Once it is initially filed, the LLC is required to file it every two years; thus the name biennial. You can file it online, through post mail or in person. There is a $20 USD fee.
The following step is to comply with every California tax and regulatory requirements. Every LLC doing business in California must pay Californian taxes to the California Franchise Tax Board (FTB) under one of two circumstances:
- either they are organized, registered of conduct business in California,
- or they have elected to be taxed as a partnership or sole proprietorship.
The three things to look for are the annual minimum taxes ($800 annual minimum), the additional taxes if your LLC has a net income over $250,000 USD and the Filing Procedures (form 568 and 3522).
Finally, the LLC must comply with other tax and regulatory requirements. There is, for example, the sales and employers tax, where you might need to register with the California State Board of Equalization if you were to sell any goods and collect taxes from that sell. There is also the Business license, were you may need to obtain specialized business licenses depending on what your LLC’s business is.
Overall, following these steps will get you the LLC needed to operate in California. It is also important to know that you can form a single-member LLC if you have a professional trait, for example a dentist, or a gardener. You just need to follow the same steps as listed above. Also, every LLC organized outside of the state must also register with the Secretary of State if they plan on doing business in California. Like any other LLC, a foreign LLC must follow all the steps mentioned before to properly operate in California.
As a final note, creating an LLC costs is in average about $120 USD if you go for the cheapest option. Still, if you hire lawyers and outside council, this can add up to thousands of dollars.