5 Steps to Setting Up an LLC in California

Leela Hopkins Last updated May 20, 2020
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California is home to over four million small businesses, making it a world leader in entrepreneurship. In order to set up a business there, you’ll need to navigate a complex set of rules and regulations unique to California. To make this less daunting for you we’ve easily outlined the steps of forming a Limited Liability Company (LLC) in California.

1. Choose a Name For Your Business

Choosing a name for your company is the first step in starting your LLC. Under California law, LLCs can’t choose a name that’s so similar to another business’s name that it would cause confusion for the public.

A useful rule of thumb is to come up with at least three names to choose from, just in case your first choice name is taken.

You can search LLC names that are currently on file with the California Secretary of State on their Business Search tool. If a name appears to be available, you can request a more formal name availability confirmation by mailing a completed name availability inquiry letter to the California Secretary of State’s office in Sacramento. Your inquiry will be processed in approximately two business days.

You can also reserve a business name for up to 60 days while you complete the other steps toward setting up your LLC. To reserve a name, you must mail or drop off in person a name reservation request form, along with a $10 reservation fee and a $10 handling fee. You can request to reserve up to three names.

However, if you want to be able to operate your business under an alternate name, then you have to register that “doing business as” name (DBA) as well.

A DBA is not a legal name, but rather an assumed name under which a business can operate.

2. Select a Registered Agent

If you want to run an LLC then you are required to designate a registered agent for your business entity. You must provide a physical address where the business can receive legal notices, summonses, and subpoenas.

The registered agent must be a California resident or a registered California corporation with a physical address in California. You cannot use PO Boxes for your registered agent address. Also, the registered agent must be available to accept documents during normal business hours.

While the state of California allows you to be your own registered agent (as long as you have a street address located in the state), using a registered agent service offers the following benefits:

3. File Articles of Organization

Articles of Organization must be filed with the office of the California State of Secretary when forming an LLC in the state.

These documents are a formal application to legally establish the existence of your LLC in the state of California and they outline the main details of your new startup. They tell the state of California how your LLC will be managed by its own members or by separate managers.

Articles of Organization in the State of California must include the following:

A domestic limited liability company is defined as an LLC that is organized and operated to do business under the laws of California and must fill out Form LLC - 1. A foreign limited liability company is defined as an LLC that is formed under the laws of another state, but want to do business in California. If you are a foreign LLC you must fill out Form LLC - 5.

The filing fee for Articles of Organization is $70. You can file this online, by mail or in person, with the Secretary of State’s office in Sacramento, CA. Once it is approved, the state will send you a stamped copy of your Articles of Organization and a 12-digit identification number that you will use on other state paperwork. Other important facts to know along with your Articles of Organization are the following:

4. File Statement of Information

Within 90 days of receiving your official LLC from the State of California, you are required to submit a Statement of Information to the Secretary of State. This document ensures that all of the information about the company is accurate and up to date. For example, if your business address or registered agent information has changed, the Statement of Information is where you’d indicate those changes.

You will need to provide the following information when filing the Statement of Information:

Make sure to file your Statement of Information on time, because failure to do so will result in a $250 fine. The Statement of Information form can be submitted online, by mail, or in person, with a $20 filing fee. You will need to file an updated Statement of Information every two years.

5. Pay Taxes

LLCs formed in California or that are registered to do business in California are required to pay four main types of taxes.

The first type of tax is an $800 annual franchise tax that all LLCs must pay.

The second type of tax is a gross receipts tax that varies based on the total revenue of the LLC:

The third type of tax refers to the obligations that apply to members of the LLC. Each member of the company must pay personal state income taxes on their share of the business's profits unless the LLC elects to be taxed as a corporation.

The final type of tax concerns LLCs with employees. LLCs with employees must withhold payroll taxes from their employees’ wages and pay the employer share of payroll taxes.

Always keep in mind that in addition to state and federal taxes, you must comply with county and/or city tax requirements. To find out if there are additional taxes you need to pay, Google your city name along with “register your business” and see if your city has tax requirements. Repeat this process with your county’s name.


Common Questions About Forming a California LLC

What is Better a California LLC or a California Corporation?

Both offer personal liability protection and keep your personal assets safe from being used to pay your company’s debts. A corporation is complicated (and expensive) to run and manage. It is mainly suited for large and complex businesses that have many shareholders. While a California LLC is more affordable and simple to set up. It is also easier to manage since you don’t have to hold board meetings or keep extensive records. If you have a large business with many shareholders, then form a corporation. If not, then a California LLC might be a better option for you.

What is Better a California LLC or a Partnership?

In a partnership, you and your partner’s personal assets are not safe. They can be used to pay off your company’s debts if your company falls behind on payments or gets sued. In comparison to a California LLC that builds a “wall of protection” between your personal assets and the assets of your business. In case your California LLC gets sued, only the assets the LLC holds can be used to pay off its liabilities. In conclusion, a California LLC is often better than a Partnership.

What is Better a California LLC or a Sole Proprietorship?

In a sole proprietorship, you will be held personally liable for your business’s debts. This because the law views you and your business as one and the same person. In a California LLC, your business is viewed as a “legal person” separate and distinct from you. It can hold and own its own assets. In case your business has to pay debts, only the assets of your business can be used. Your California LLC creditors won’t be able to go after your personal assets. Therefore, a California LLC is preferable to a sole proprietorship for asset protection.

When is the Best Time of Year to Form an California LLC?

Remember, you must pay the Annual LLC Franchise Tax of $800 by the 15th day of the 4th month after you filed your California LLC. However, this pays for the current year only. After that, you’ll have to pay it again by April 15th of every year. For that reason if you form your California LLC in October, November, or December, you’ll end up paying $800 twice within the span of a few months. As a result, it is recommend you form your California LLC before October, November, or December. In the case your business doesn’t need to operate immediately you can wait until January the following year to form your California LLC.

Final Thoughts on Forming an LLC in California

California LLCs provide a combination of operational flexibility and legal protections. In addition, California business owners mainly choose to form an LLC because this structure gives owners the same limitation of liability as a corporation without the added complications.

Do You Need A Registered Agent For Your California LLC?

Before you can form a LLC in California a registered agent is required. You’re required to designate an in-state registered agent when you form your company and in each additional state in which you are doing business. Maintaining a registered agent in the state in which you formed and in each state where your company is conducting business is an ongoing requirement.

With a VirtualPostMail account, you get FREE registered agent services. Save over $100 a year compared to using a dedicated registered agent service.

Leela Hopkins

https://www.virtualpostmail.com/

Marketing Specialist at VirtualPostMail. I am dedicated to bringing you useful information to help you run your business remotely. My ultimate goal is to help you successfully take your business fully remote.

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