Do you have great idea for a technology startup, or want to open a hip restaurant selling locally sourced food? The Golden State has a storied history of entrepreneurship and innovation, leading it to become one of the biggest economies in the world! Creating an LLC in California is an easy, flexible way to get your business off the ground. Here is everything you need to know.
The name you choose for your California limited liability company must be recognizably different from any other LLC, corporation, or other business entity authorized to do business in the Golden State. This goes for entities originally formed in California, as well as those originally formed elsewhere but authorized to conduct business there. Is the name you want available? You can search to find out.
How much freedom do you have in naming your new California LLC? Here are three things to keep in mind:
Now that your California LLC has a name, you are required to file articles of organization with the California Secretary of State’s office. The filing fee starts at $70, and can be expedited for an additional fee. The articles of organization must include:
California LLCs must designate a registered agent in California to receive official state correspondence. An LLC’s registered agent can be a resident individual in California State, a corporation, or a corporation originally formed in some other state that is authorized to transact business in the Golden State. It is allowable but not required for the registered office to be the LLC’s place of business.
Incfile can provide registered agent service for California LLCs, if needed.
Your LLC is considered organized once the articles of organization are received by the California Secretary of State’s office with the appropriate filing fee, and are found to be in compliance with state requirements. One certified copy of the articles of organization will become a public document, and the other certified copy will be returned to the organizer or members.
Following the articles of organization, the most important document for starting an LLC in California is your operating agreement. In the same way as a corporation’s bylaws, having an operating agreement isn’t mandated by the state, but is a very important internal document that officially states how the LLC will be run. It should list:
The operating agreement may also specify requirements for meetings and other operating procedures, but it is not required to. This is one benefit for forming an LLC instead of a traditional corporation. Normally, however, the operating agreement does include state requirements, and it can contain limits on members’ authority to adopt, change, or repeal an operating agreement. If the LLC has more than one member, the operating agreement must be initially approved by all the members in writing.
The owners of an LLC in California are called “members” instead of “shareholders” or “partners” as in a corporation. An LLC must have at least one member, who may be an individual, a corporation, a partnership, another LLC, or any other legal entity.
Members may acquire an interest in or become a member when they are first forming an LLC in California, in a method stated in the operating agreement, or when the majority of the LLC’s members approve by voting. Unless otherwise specified in the articles of organization or operating agreement, the LLC’s members vote in proportion to their profit interests in the LLC.
A member normally needs to pay cash, make a contribution, or transfer property to the LLC in order to become a member. However, an individual may be admitted as a member without acquiring a membership interest if there is such a provision in the articles of organization or operating agreement, or if all the LLC’s members consent and the admission is documented in the official records.
Now that you have formed your LLC in California, you have a few tasks that must be completed each year. California LLCs must make an annual statement regarding its financial conditions to both its members, and the California Department of State.
You will need to file your Statement of Information, which is due within 90 days of the initial formation of your LLC. The state’s Franchise Tax report is due annually.
An LLC has some tax advantages compared to a corporation, including more potential tax deductions. Also, an LLC does not have to be a separate tax entity like a corporation; instead, it can be considered a “pass-through entity,” so that the LLC owners report business losses or profits on their personal tax returns, as sole proprietorships, in the same way that a partnership does. This means that the LLC itself does not pay taxes and does not have to file a tax return.
California state taxes vary depending on taxable income. However, California LLCs are subject to an annual minimum franchise tax of $800 per year, and the first payment must be made within three months of the LLC’s formation.
When you start your business with Incfile, we will send email reminders as the due dates approach for California’s ongoing requirements for LLCs.
Do you have an old LLC in California that is no longer in operation? To make sure that you wrap things up correctly, it’s important to know that an LLC is considered to be dissolved when any of the following events occur:
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