If you are thinking of starting a business, California may be one of the best states to do so. With its encouraging attitude towards invention, risk-taking, and creativity, California has attracted top visionaries from different industries.
California is home to some of the biggest businesses and names in the world. But, it is also possible to start small and grow one’s business here. You do not need to come in with the finances to start up a new Apple or Pixar. You can start as a one-person operation, or even a small or medium business, and grow from there. One of the best ways to start is to form an LLC.
What Is A California LLC?
LLC stands for Limited Liability Company. It is one way to legally and financially categorize your business for revenue and taxation. There are three types of business structures you can apply for in California. The first is Doing Business As (DBA), which is also known as a fictitious name or sole proprietorship. It is the easiest structure to apply for and is usually done by people who are just starting and need some official business structure behind them, such as freelance writers or graphic designers. The largest and most traditional category is the corporation, which has many employees, offers stocks, and has a board of directors and shareholders.
The LLC falls in the middle, but that does not mean that it is only for medium-sized businesses. An LLC structure is ideal for 1-5 or more business owners. Despite being a relatively new business structure, there is one aspect of the LLC that makes it the most popular in America today. LLC provides greater financial protection than the DBA/sole proprietorship, without needing the size or having to deal with the complexities of a corporate structure.
For example, a freelance TV scriptwriter makes an error at tax time and owes the IRS money on the registered DBA. The liability can be taken straight out of the scriptwriter’s private bank account and finances. Functionally, there is no difference in a DBA/sole proprietorship between a personal bank account and a corporate bank account. Both are subject to liability.
A corporation, on the other hand, is different. Even if the company incurs massive debt, the repayment of the said debt cannot come from the CEO’s bank account. Only company assets are subject to liability.
LLC provides this same type of corporate protection. Any money you invest in the LLC is liable to financial damage or debt. But, personal finances are outside the scope of that liability. So while an LLC requires more effort to form than a DBA, it provides far more financial protection. It is also easier to apply for and maintain than a corporation.
Are There California LLC Fees Involved?
As a business owner, you will have to spend some money on the California LLC fee and other additional expenses. Fortunately, the fee is not that unreasonable. There is no inflated pricing when it comes to applying for LLC status. All fees are for administration and processing purposes only.
The California LLC fee is $70 for the initial filing of your application and $5 for a certified copy of the document. Normally, the submission, review process, and approval will take place over 15 business days. If you are in a hurry, it is possible to do it in five business days. However, there is an additional $15 filing fee, but this option is only available if the paperwork is hand delivered to the Secretary of State.
Aside from the initial submission fee, there are other mandatory expenses that you need to consider. If this is your first business, you will need to apply to the IRS for a Federal Employee Identification Number or FEIN. It is the business equivalent of your Social Security Number and is a requirement for all financial/tax-related filings.
If you have a business outside California and you are thinking of expanding into the state, then you must register your business as a Foreign LLC. You have to pay for additional fees for submission and processing.
Finally, depending on the type of business you run, you may need to pay additional fees to secure specific licenses and permits. A restaurant, for example, will need the proper permits for serving food and beverages and meet minimum health inspection standards. A bar would need to secure a liquor license to sell spirits and other alcoholic beverages. There may also be additional fees based on your location. Different cities, towns, and counties will have municipal regulations for LLCs.
In addition to those fees, people who form an LLC are also agreeing to certain mandatory yearly expenditures. All California businesses must pay a minimum franchise tax of $800 every year, in addition to filing a report. There is a statement of information due within 90 days from the date of the formation of the LLC with a $20 filing fee. The LLC is also required to file a biennial statement of information every other year during the anniversary month of formation with a $20 filing fee.
Paying a California LLC fee is not the biggest expense for a start-up. However, it is the cornerstone of having a legitimate business that observes all the rules and regulations of business in this state. If you want to enjoy the many business opportunities that California can offer, think about forming an LLC and be prepared to pay the fees required.
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