Starting a limited liability company (LLC) in California provides protection for your personal assets while offering tax and operational advantages over the corporate structure.
If you're interested in opening a California LLC, this simple 6-step guide will get you there.
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6 Steps to Start an LLC in California
The California Secretary of State maintains an online portal for business filings, including LLC registration. Follow these steps to create your LLC online.
1. Create an Online Profile
You'll need to register at bizfile Online to get started, unless you plan to submit your LLC forms by mail or in person. Choose Register a Business, then go through the online prompts to create an account for your new company. When you're done, click Submit and you'll be ready to log in when it's time to fill out your forms.
2. Select a Unique Business Name
You can't choose an LLC name that's already registered by another California business entity. When you have the perfect business name in mind, you can search the Secretary of State database online to make sure it's not taken.
You may also want to see if your intended domain name is available.
If you've checked the name you want and it's free but you're not ready to start your LLC, consider a name reservation. You can hold the name for 60 days by completing the state's Name Reservation Request Form.
You must either hand deliver or mail this form to the Secretary of State, Name Availability Unit, 1500 11th Street, 3rd Floor, Sacramento, CA 95814, along with a self-addressed stamped envelope. Name reservation isn't available online in California.
Before finalizing the name, you also need to make sure it meets California's LLC name requirements. Specifically, your legal LLC name must end with "Limited Liability Company," "Ltd. Liability Co.," LLC, or L.L.C. You can't use certain words such as insurance, banking, trustee, or finance without the proper paperwork to run that type of business.
3. Choose a Registered Agent
California requires LLCs to name a registered agent, either someone who owns or works for the business or a professional agency. This person or business agrees to accept official legal documents during normal business hours on behalf of your LLC. They must have a mailing address in the state other than a post office box.
If you choose an individual to act as your registered agent, they must be at least 18 years old.
4. Submit the Articles of Organization
With your name and registered agent in place, it's time to log into the bizFile online portal and complete the Articles of Organization to start your LLC. Alternatively, you can file Form LLC-1 by postal mail or in person for an additional $15 fee. The form requires you to submit:
- Your name and contact information as the submitting individual
- The name and address of your company
- Your existing entity number if applicable
- The name and address of your LLC
- The name and address of your registered agent
- Your management structure, whether you plan for the owners (members) to run the LLC or hire managers for its daily operations
- The purpose of your LLC
5. Create an Operating Agreement
An operating agreement isn't legally required for your LLC, but it does make it easier to manage the daily activities of the business. This document establishes ownership percentages for each of the LLC members, determines a management structure, and details member responsibilities. It covers procedures to handle issues such as a member leaving the LLC, which can help you avoid costly disputes if disagreements arise in the future.
The operating agreement may also include:
- Voting powers for members
- Meeting and minute requirements
- Allocation of LLC profits and losses
If you don't have an operating agreement in place, you must default to California law when resolving LLC disputes.
6. Submit Your Biennial Report
You have 90 days after submitting your Articles of Organization to file Form LLC-12, Statement of Information. After this initial filing, you must submit the form every other year within six months of the anniversary of LLC formation. It asks for:
- The name and state filing number for your LLC
- The principal business activity of the LLC
- The street address of your main business office
- The name and mailing address of your registered agent
- Name and contact information for all LLC members and managers
- The mailing address for the LLC if it differs from the business office
- An email address for the LLC if you want to receive state documents electronically
The form requires a $20 fee and can be submitted online, hand delivered, or mailed.
The Next Steps After Forming an LLC in California
Once you've successfully started a California LLC, it's important to keep your company in good standing with the state by following applicable legal requirements. These are the next steps to open your physical or virtual doors in the Golden State:
- Set up a payment system. Pay.com provides everything you need to accept online payments from your customers. Don’t wait till the last minute - click here to create your account now!
- Obtain an Employer Identification Number (EIN) from the IRS. You can get your EIN instantly without a fee by completing the online request form. All LLCs with more than one member have to have an EIN to pay federal taxes, but you may want to get one even as a single member LLC so you can open a bank account to separate your business and personal finances. You'll also use this number to get the business permits and licenses you need to operate in your California municipality.
- Open a bank account for your business. As mentioned, you'll have limited personal liability for business assets and debts when you create an LLC. However, to maintain limited liability, you have to completely separate the company finances from your own accounts.
- Stay on top of state paperwork. For example, you'll have to pay a fee if you don't maintain a current California mailing address on file for your company's registered agent.
- Prepare to pay business taxes. California LLCs owe $800 per year for franchise tax, due halfway through the fourth month after you start your legal business entity. In future years, the due date will be April 15. You may want to consult with an accountant who is familiar with state business taxes, since some LLCs may be exempt from franchise tax during the first year of operation. If your LLC earns more than $250,000 in the tax year, you'll be subject to additional tax payments.
- Buy insurance policies for your LLC. Most companies need at least a basic business liability policy, which covers the costs of lawsuits in case someone sues the company. Depending on the type of work you do, you might also require commercial auto insurance, professional liability insurance, commercial property insurance, or business income insurance. If you have employees, you need to enroll in a workers' compensation insurance plan. You may also want to purchase health insurance for LLC members and employees.
- Get the necessary business licenses and permits. You can find out what your LLC needs by using CalGold, a business license portal available through the Governor's Office of Business and Economic Development where you can search by location and business type.
The Bottom Line
Establishing a legal business entity like an LLC can protect your home and other personal assets from the financial liabilities of your company, like debts and lawsuits. Starting a California LLC requires these six simple steps. Although the paperwork is relatively easy to complete, you'll also need to meet the state's ongoing requirements for business entities like paying franchise tax.
A strong payment system increases the chances that your company will thrive. Pay.com offers a full-service infrastructure that works for LLCs of all sizes, with a transparent, affordable fee structure and Level 1 PCI DSS compliance. Click here to get started now!
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