How to Start an LLC in California

By Bazal Razzaq

Chief Editor

Updated: August 02, 2023, 12:30pm

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How to Start an LLC in California

Looking to open an LLC in California? Smart choice. Recognized as the best US state for entrepreneurs, California is home to multiple businesses, from catering, lifestyle, and fashion, to health, beauty, home, and gardening. The golden state, often linked to celebrities and sunny beaches, has so much to offer to aspiring business owners like you. 

With millions of dwellers and thousands of companies offering innovative products and services already set up, California is the hottest thing in business right now! It’s the ultimate haven where businesses of all shapes and sizes thrive. Still unsure? Let us make it easier for you.

Benefits of forming your LLC in California:

Starting an LLC is not a piece of cake, especially when each state in the US has different requirements, rules, and regulations. But in California, the process becomes less troublesome and more effortless. How? Here’s a quick list of benefits explaining just that: 

  • Limited Liability ProtectionIn case of a lawsuit or other legal proceedings, it can protect your personal assets from being collected or seized for debts or other such liabilities. 

To put it simply, when an entrepreneur has limited liability protection, they won’t be held responsible if their business suffers a loss. This advantage makes their personal assets, like their car and bank account, secure and protected against being captured.

  • Pass-through taxation: Pass-through taxation means that all the profits and losses of the business will pass through to the members or owners of the LLC and will be reported on their individual tax returns. The LLC itself pays no taxes and, in turn, isn’t taxed as a separate entity. Overall, this can result in lower taxes for both the business and its owners and members.
  • Flexible Ownership: Registering your business as an LLC allows for a more flexible ownership and management structure. There are very few restrictions and limitations, so you can customize them according to the wants and needs of your business and its members. 

There are no set rules for the number or types of business owners and how the said owners and members choose to manage their businesses. They can run it themselves or hire professional managers. 

  • Credibility: Setting up your California business as a Limited Liability Company brings added credibility and trustworthiness. Since an LLC is recognized as a more formal business structure than a partnership or sole proprietorship, it can help attract clients, customers, and potential investors and partners. 
  • Ease of Administration: LLCs are relatively easier to form and administer than other entities, such as Corporations. There are fewer formalities and requirements as they require little paperwork and minimal expenses than other business structures. 

There are no annual meetings, formal officers, complex record holdings, or creating bylaws, which makes administrating an LLC less burdensome.

Now that we’ve covered perks let’s discuss technicalities. Here’s a step-by-step process for opening an LLC in California:

#1 Name your California LLC:

Yes, the first and the most basic step to tick mark is choosing a name for your business. Chances are you’ve already shortlisted a few names for your LLC. Now you just have to narrow it down to one. 

A set of rules need to be followed before picking out a name for your LLC. They are:

  • The name shouldn’t be the same as any other registered business.
  • Avoid misleading the public by including any detail that displays your business as a bank, corporation, or any other type of venture it’s not.
  • There are no restrictive terms such as “trustee,” “board,” “or insurance.”
  • Your LLC name shouldn’t contain any obscene or forbidden words.
  • Check that it’s not being used as a domain name to avoid trademark or legal issues. 
  • The name should reflect its LLC status. It should end with abbreviations like “LLC,” “LLC,” or “Ltd.” (Most people stick with just LLC)

If you need any more help or information related to name selection, you can head over here and read more.

#2 Choose a registered agent:

Your California LLC needs a registered agent to receive all important legal documentation, such as annually renewed forms or service of process notices, on behalf of you and your business. In California, you must have a person or entity authorized to receive government ordinances, tax forms, as well as lawsuit notices. 

California doesn’t allow you or any other business member to be your agent since their address details will be mentioned in the public record as your business details. Note that your California registered agent must be 18 or older.

#3 Prepare and File Articles of Organization:

For the next step, you need to file Articles of Organization with the California Secretary of State’s office. It is a legal document that establishes your LLC in California and its existence and sets forth its basic structure and purpose. The document includes the following:

  1. Your LLC name and address.
  2. The main purpose of your LLC.
  3. The number of shares authorized.
  4. The names and addresses of its members.
  5. Registered agent’s name and address.
  6. The management structure of your LLC.
  7. Signature of the person forming the LLC.

While it may sound like a big and daunting task, in reality, it simply means filling out a basic online form and submitting it. You can do this yourself or hire an attorney or formation service to assist you with the whole process.

You can file Articles of Organization online using the California Secretary of State’s website or by mailing the document to the Secretary of State’s office. The filing fee could be around $100, and it takes about two to three weeks for the state office to process the document.

#4 Obtain a Federal Employer Identification Number (EIN)

After filing the Articles of Organization, you need to obtain a Federal Employer Identification Number (EIN) from the Internal Revenue Service (IRS). The EIN is a nine-digit unique number identifying your corporation for tax purposes. You can obtain an EIN online on the IRS website or apply by mail, fax, or phone. If you’re based out of the country, you can email or fax the Form SS-4.

#5 Register and pay for State Taxes.

In California, all LLCs and foreign LLCs need to pay an annual minimum franchise tax of $800, even if they’re not actively conducting business in the state. The fee must be paid even if the LLC is not making any income and is due every year before April 15. 

Remember that LLCs formed on or after January 1, 2021, and before January 1, 2024, won’t be required to pay this fee in their first year. Keep checking with the state if there are any recent changes made regarding the same. 

You also need to register for state taxes, including income tax, sales tax, and employment tax. Registration for the same can be done online using the website of the California Department of Tax and Fee Administration.

#6 Open a Business Bank Account

Once you have obtained an EIN, registered for state taxes, and obtained the necessary licenses and permits, you can open a business bank account under your LLC’s name. It is essential for keeping business finances separate from your personal finances. 

Take care of all the transaction receipts and withdrawals, and keep assessing all the banking statements you’re entitled to. This allows you to stay informed about your financial activities. 

As an LLC owner, you can open a bank account, but only after you’ve met the following conditions:

  1. You have an Employer Identification Number(EIN), and,
  2. A business address( you can use your registered agent’s)
  3. You’ll be required to open the account in person.

#7 Set an operating agreement:

An operating agreement is an internal document containing information and ground rules on the LLC’s operating terms. It describes the roles, rights, and responsibilities of its members. While this may not be a requirement for all US states, you should consider creating one in case the co-owners ever get into a disagreement, a fight, or a misunderstanding and need help arriving at a solution.

California does not require a single-member LLC to have an operating agreement, but Multi-member LLC has to have an operating agreement.

#8 Comply with Ongoing Filing Requirements

You must comply with ongoing filing requirements once you’ve filed your California LLC. These include filing an Annual Statement of Information, paying franchise taxes, and holding annual shareholder meetings. If you fail to comply, it can result in penalties or the suspension of your LLC’s status.

In conclusion, starting an LLC in California may not be complicated, but it is important to do it right to ensure your business’s success. Following the above steps, you can start your own LLC corporation in California and exploit the state’s vibrant economy.

 Regardless of the type of business you want to launch in California or anywhere else in America, our team of experts is right here to help you.

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Frequently Asked Questions​

The filing fee for Articles of Organization in California is $100. However, some additional costs may be associated with setting up an LLC in the state, such as legal fees, accounting fees, and business license fees.

No, the process of creating an LLC in California typically takes about two to three weeks, assuming that you’ve filed all the necessary documents correctly and no issues need to be resolved.

Yes, you can form your LLC in California even if you live in another state. However, you will need to appoint a registered agent in California who can receive legal documents for you and your LLC.

No, a lawyer is not always necessary to form an LLC in California. To make sure you comply with all legal requirements and resolve any potential legal concerns, it can be beneficial to speak with a lawyer or other professional.

The cheapest way to form an LLC in California is to file the Articles of Organization yourself through the California Secretary of State’s website. The charge for filing the Articles of Organization is $70.

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