Learn how to set up your California LLC.
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An LLC stands for Limited Liability Company, and is one of the most common and convenient business types.
Simply put, starting an LLC gives you the opportunity to open and register a new business entity, while assisting in keeping your personal assets protected, and legally separate from your new business.
Some of the benefits of a California LLC may include:
An LLC can be useful for small and medium businesses, as well as to entrepreneurs operating a ‘one man show’.
California is one of the most sought after states to start a business in, with a robust economy of over $3.63 trillion GDP, naturally, this makes the state one of the most popular states to start an LLC in.
With one the biggest economies in the world, starting an LLC in California can be the starting point of your dream business.
Here are the steps you’ll need to take in order to form your LLC in California.
Starting an LLC in California or any other state can be a stressful process, especially if you’re doing it for the first time and not sure what to expect. To help guide you through this process, we created this simple step by step guide, breaking down each step so that you can clearly understand what you need to do in each stage of the process.
Below, you’ll find a detailed explanation to walk you through each step.
As with any other business, it starts with a vision, and a key component of that vision is the name. A great name can, in just one word or a few, clearly broadcast your intentions about your business, and what your business is all about.
While naming your LLC is similar to naming your business, there are some key differences that you should keep in mind. We’ll explain more below.
California requires you to register the name of your business in order to form an LLC. Here are some of the rules and limitations on registering your California LLC name.
The first thing you need to do (if you already have an operating business, or an idea for a name in mind) is to run a name search check in the California Secretary of State business name database.
This step is done to make sure the name you chose is unique. Your business name must be unique in order for you to be able to form an LLC in California.
Other requirements include:
What if you don’t know what the name of your business would be? If you are not ready to complete the formation of your LLC, you can pay a $10 fee and reserve a name for up to 60 days. You can access the name reservation form online and can submit it with a $10 check or money order by mail to:
Secretary of State
Name Reservation Unit
1500 11th Street, 3rd Floor
Sacramento, CA 95814
You can drop off the form at the Secretary of State’s office in Sacramento or the office in Los Angeles that is located at:
300 South Spring Street, Room 12513
Los Angeles, CA 90013
If dropping the form off in person, you can pay by check, money order, or a Visa or Mastercard credit card.
You can reserve more than one name, but each reservation must be on a separate form, delivered in a separate envelope, and have a $10 check or money order included with the reservation form.
You can renew the reservation, but there must be at least a one-day interval between the end of the 60-day reservation period and the day you submit your renewal of the reservation of the name.
A DBA, also known as: ‘doing business as’, ‘fictitious business name’ or ‘trade name’, is your chosen business name, if you’re doing business under any other name than your own.
A fictitious business name can be your brand name, a franchise name, or any name that you choose. You can also trademark your DBA if you wish.
California requires you to file a DBA if you plan on doing business under any name other than the one you used at the time of the formation of your LLC. If you always sign legal documents under the name on your Articles of Organization, then using a DBA is optional.
This step is not necessary for forming an LLC, but it is highly recommended. If you are unsure whether or not you need a trademark, learn more here or skip this part for now!
Below you’ll find some of the reasons why registering a trademark can be beneficial for your business.
When you form your LLC in California and choose the name of your business, you are protected within the state and no one else in California can use your business name or one that is similar to it.
Other businesses within the country are not prohibited from using the name in their own state or other states unless you obtain a federal trademark that gives you exclusive use of that business name.
To register the name of your LLC for a federal trademark, you must submit an application to the United States Patent and Trademark Office (USPTO). Before you do this, you must conduct a search to be sure the name is not already trademarked. You do this by searching through the Trademark Electronic Service System (TESS).
This can be a complicated and time-consuming process, and one that we can do for you if you decide this is something you want to proceed with.
The California Secretary of State requires a registered agent to be identified in the Articles of Organization. The agent must:
The LLC can choose the services of any approved California registered agents or can use a registered corporate agent who is qualified with the California Secretary of State.
You’re probably wondering, ‘Can I simply be my own registered agent?’. The answer is yes, but there are some implications you should be aware of.
You can choose to designate yourself as the registered agent. But, keep in mind that if you do that, your information will be public. This may be an issue if you are running the business out of your home.
Most business owners prefer not to put their personal information on the public record, and opt for using a registered agent service that will keep their own personal information secure.
Now that you know all the options, you can decide for yourself which option works best for you!
An article of organization is a key legal document containing basic information about your business, and filling it is one of the very first steps for forming an LLC.
Think of it as the way you declare to the state of California that you’re starting an LLC!
California requires you to file Articles of Organization with the Secretary of State. You do this by simply filling out form LLC-1 entitled “Secretary of State Articles of Organization Limited Liability Company (LLC).” The last two pages of the form include instructions for filling out the form and submitting it.
The filing fee for your Articles of Organization is $70.00. You may pay for it by check or money order made out to the California Secretary of State. If you want a certified copy, it will cost $5.00 for the certification.
You need to be sure you fill in form LLC-1 correctly or it will be sent back to you for correction and delay the process of operating your business as an LLC.
Include the following on the form:
California allows filing the Submission of the Cover Sheet and the Articles of Organization online or by mailing them or presenting them in person to the California Secretary of State in Sacramento.
In California, forming an LLC requires you to create and maintain an operating agreement. An operating agreement defines the roles and responsibilities of all members and goes a long way toward preventing future misunderstandings.
You don’t need to file the agreement with the Secretary of State, but the state does require the LLC to prepare one and maintain it at the office where the rest of the LLC papers are kept.
The agreement should include:
The operating agreement should be updated whenever there is a new member or there are any other changes that need to be made so that the agreement will accurately reflect your current situation.
Important note: You may be tempted to think that since you have a single member LLC, you don’t need to have an operating agreement, wrong!
Don’t worry, this is in fact a very common mistake! However, this is wrong. California requires you to create an operating agreement, even if you have a single member LLC that includes only yourself.
In California, like in other states, you would need to create an EIN (IRS Employer Identification Number). This is very beneficial from several reasons that will be explained below, so we consider it a must for every business owner.
An EIN is your Employer Identification Number required and issued by the IRS for all LLCs. It is a 9-digit number similar to your Social Security Number (SSN) but is used for business-related purposes only.
As a business owner, you will need an EIN to open a business bank account, apply for a business loan, and to pay your business income taxes.
If you question whether you need an EIN, review this document from the IRS, answer the questions there, and decide for yourself. You can then apply for your EIN for your LLC online or you can ask us to do it for you since this is a service we provide.
Note the EIN is filed with the IRS, and is not the same as your California Tax ID Number.
Another consideration you should have when applying for an EIN, is that it should match your LLC name. Assuming that you followed all the instructions and naming conventions as explained in step, this shouldn’t be a problem. But, if from whatever reason your LLC name is not approved, you would need to apply for an EIN again.
We’re here to help you make this process as smooth as possible! This is exactly why we created this guide.
We know, nobody likes tax season. But this is exactly why you should get to know the relevant California tax rules even before you form your LLC. This way, when tax season comes around, you would be prepared. We’ll explain more below, and you can also read more about California LLC tax rules here.
Every LLC that is organized or doing business in California must pay an annual tax of $800 from the time the LLC is formed until the LLC is formally dissolved. This is true even if the LLC is only organized in the state but not conducting any business there.
The tax is due on the 15th day of the 4th month following the date you file your Articles of Organization with the Secretary of State.
The $800 tax for the first year is waived for those LLCs formed between January 1, 2021, and January 1, 2024.
Businesses are also exempt if:
Check out this general guide for information about taxes and LLC. However, each state has slightly different rules, so you need to make sure that you comply with California’s tax regulations. Below we highlighted some of the tax aspects that are unique to California. With one of the strongest economies in the US and in the world, California is also a state with some of the highest taxes in the country.
If your business made more than $250,000 in income, you will pay a fee according to the amount of income generated, in addition to the annual $800.
According to the California Franchise Tax Board, the current fee structure is as follows:
If the total California income rounded to the nearest whole dollar is:
Annual Income | Fee |
$250,000 – $499,999: | The fee is $900. |
$500,000 – $999,999: | The fee is $2,500. |
$1,000,000 – $4,999,999: | The fee is $6,000. |
$5,000,000 or more: | The fee is $11,790. |
As for income tax, the LLC itself does not pay income tax. The members pay personal state and federal income tax based on the amount of money they earn from the LLC the same way as any of their other earnings.
An LLC that is in the retail business must register with the California Department of Tax and Fee Administration (CDTFA) and pay all sales tax on goods and services except for those that are specifically exempt.
Self-employment tax must be paid by LLCs that have a net profit of $400 or more during the taxable year. The tax is for Social Security and Medicare tax for self-employed people.
For all LLC employees, the LLC must withhold payroll taxes, which include:
LLCs pay property tax on all property they own in the county where the property is owned.
The LLC may also need to pay excise taxes, fuel taxes, and environmental fees, all depending on the type of business in which the LLC is engaged.
Congratulations! Once you’ve completed all these steps, you are officially closer to getting your LLC. If you still feel overwhelmed, or just short on time, you can always automate the process with us.
We know, this is not technically part of forming an LLC. But we also know that creating an LLC in California is just the beginning of your business journey. To help make your first steps as a business owner easier, we collected here some relevant advice that would help you take your California business off the ground smoothly.
The Small Business Administration (SBA) advises all businesses to open a separate business account as a protection to be sure they are and stay legally compliant. To open the business account you will need:
Accounts you need to have for your business include a:
Look for banks that offer good rates to new businesses. Avoid those that have hidden fees like those imposed if you fail to have a required minimum account balance and similar types of penalties.
Within 90 days of filing the registration of your LLC, you must file a Statement of Information with the Secretary of State. This is essentially the equivalent of the annual statement required of corporations and must be filed every two years.
The filing fee for this document is $20 and must be paid by Mastercard or Visa. You can update the Statement of Information any time during the two-year period of time, and there is no fee for the update.
If you have not done so already, now is the time to consult with a tax advisor such as a tax lawyer or certified public accountant (CPA) to make a plan so that you can get the most out of the tax benefits from your LLC.
Your tax professional will assist you with identifying your goals, help you plan for a good cash flow with your business, determine your insurance needs, and provide you with many other benefits with the goal of optimizing your income.
Essentially, every business operating in California is required to have a business license. The basic license is simply called a general business license. A business license is not issued to LLCs by the Office of the Secretary of State, but by the state agency with jurisdiction over the activities that are conducted by the LLC.
Also, if your business is required to be licensed, certified, or registered, the California Secretary of State urges you to contact the appropriate licensing authority to determine whether your services are considered professional and therefore prohibited from operating as an LLC.
Depending on the type of business the LLC is involved in and where it is located, you may also need a specific type of business license and/or a permit from the state before you can actually begin operating. Your local city or county may require this even if the state does not.
It is most common for a restaurant or any business that sells food and/or alcohol to need a business license. You can check state requirements to see if your business requires a license or permit online here. The Department of Consumer Affairs also provides helpful information to businesses about licensing regulations.
You also need to check with your local government and municipality to see what the rules are.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness. It also does not indicate any affiliation between Tailor Brands and any other brands, services or logos.
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