The main advantages of forming an LLC in California are that it’s affordable and easy to form. Almost anyone forming an LLC, from the “mom and pop” pizza shop to the local beer and liquor distributor. An LLC cannot be formed in California to provide professional services, especially services that require a professional state license like banks and insurance companies.
Properly forming an LLC in California, the following steps are required:
Choose a Name for your LLC
Think carefully about the name of your LLC, as this will be part of your company’s “brand” going forward. The name must include some form of the phrase limited liability company, i.e. Limited Liability Company, LLC, or L.L.C. The name of the company cannot be misleading to the general public, and there are restricted words that cannot be a part of the name (e.g. Bank, Attorney, and University) – organizations need special permission to use these words. There are also prohibited words that cannot be a part of the name for any reason (e.g. FBI, Secret Service, Treasury, etc.) when forming an LLC in California.
Do a name search on the state of California’s website to check if the name is available. If so, names can be reserved for up to 60 days by filing a Name Reservation Request Form. If the company will have a website, check to see if the URL is available so you can reserve the domain name.
Assign an Agent for Service of Process
In the state of California, an LLC is required to designate an Agent for Service of Process, also known as a Registered Agent. A Registered Agent is a person or business that can send or receive legal papers and documents on behalf of the LLC, including a service of process of legal action in the event you are sued, as well as various other state filings.
Qualifications for being a California registered agent?
- Must be a resident of California or a company authorized to do business in the state. It can also be someone in your LLC, including yourself.
- The LLC cannot be its own Agent for Service of Process.
- Only one person or business can be designated as the Registered Agent.
File Articles of Organization with the State
When forming an LLC in California, the Articles of Organization (Form LLC-1) must include the following:
- The LLC’s name
- The LLC’s purpose
- Information on how the LLC will be managed
- Member managed?
- Manager managed?
- The LLC’s address
- Name of the Registered Agent and the Registered Agent’s address
Unlike many other states, California does not have publication requirements, which means you are not required to publish the LLC’s Articles of Organization in a newspaper or other publication.
File an Initial Statement of Information
The state of California requires that, within 90 days of filing the Articles of Organization, the LLC file an initial Statement of Information (Form LLC-12) with the California Secretary of State. The form can be filed by mail, in person, or online, and must include the following:
- The LLC’s name
- California Secretary of State’s file number for the LLC
- The LLC’s street address of its principle office
- The LLC’s mailing address if different than above
- The LLC’s general type of business activity
- The LLC’s registered agent information including name and contact details
- E.g. Shoe Store, Gift Shop, Microbrewery, etc.
- A filing fee of $20
Create an Operating Agreement
In the state of California, an LLC is required to have an operating agreement (O.A.) However, this document should not be filed with the state, but instead kept in the company’s records. The LLC’s O.A. may be verbal or written. This document should outline the company’s ownership and operating procedures when forming an LLC in California.
Obtain an EIN
What is an EIN? Issued free by the IRS, an EIN is an Employer Identification Number. In other words, a Federal Tax Identification Number. Think of it as a company’s social security number, it’s used to identify a business with the Federal Government. An EIN is required when filing state and federal taxes, and banks may even require one when you open a business checking account.
Comply with Tax and Regulatory Requirements
As part of forming an LLC in California, you will need to comply with all tax and regulatory requirements. This includes any business licenses your LLC requires, sales and employer taxes, an annual minimum franchise tax of $800, and any other additional taxes.