Before you can file your LLC, there are some vital details you will need to take care of first. In the sections below, we’ll take you through how to start an LLC in California. The first three steps are necessary for creating an LLC, while the remaining steps are necessary to keep your business in good standing with the state and set the right foundation for your business’s long-term success.
Step 1. Choose Your LLC Business Name
Chances are, you already have a shortlist of names in mind for your new LLC business venture. Now’s the time to narrow that list down to one.
But this step is about more than just deciding on the business name you want.
California LLC Name Requirements
The name you choose for your LLC in California must meet certain criteria, including:
Identifying as a Limited Liability Company:LLCs in California must have words in their names that clearly identify them as limited liability companies. This means your LLC’s name must include one of the following:
- “Limited Liability Company” (you may abbreviate “Limited” as “Ltd” and “Company” as “Co.”)
- “L.L.C.”
- “LLC”
Being Distinguishable:Your LLC’s name must be distinguishable from the name of any other LLC currently registered in California. This means you must choose a unique name for your LLC.
Not Being Misleading: The name you select for your LLC can’t be misleading to the public. For example, your name can’t falsely imply any of the following:
- Government affiliation: You can’t choose a name that implies you’re affiliated with a government organization or authority. So you’ll need to steer away from words such as “Commission” or “Municipal.”
- Professional corporation: You can’t include the terms “Professional Corporation,” “Prof Corp,” “P.C.” or “PC” in your LLC’s name.
- Insurer: Unless your business is an insurer that’s subject to California’s Insurance Code, you can’t use a name that implies you’re an insurer. For example, if your name contains the word “insurance,” you need to have other words in your name that make it clear you’re not an insurer, such as “Insurance Agency” or “Insurance Broker.”
Business Name Search
The last thing you want to do is start the process of setting up your new LLC only to discover the name you want (that you might have already ordered a logo design or business cards for) is already being used by another LLC in California.
That’s why you shouldn’t skip doing a business name search. You can perform name searches on the Secretary of State’s website to ensure that the name you want is available.
Name Reservation Request
After successfully settling on a name, you can submit a Name Reservation Request form to reserve your new LLC name for up to 60 days. You can make a name reservation either online, by mail or by dropping off the form in person. The fee to reserve a name is $10.
Domain Name and Social Media Accounts
Today’s businesses need to have an online presence: Customers expect to be able to research and explore the companies and brands they’re interested in online. This means you’ll need to have a website for your business, and set up new social media accounts, too.
You’ll want to register a domain name for your new site. Your business name might not be available as a .com URL, but take heart: There are lots of ways to come up with a domain name that will reflect your brand well.
Once you’ve registered your domain name, you should also consider setting aside time to build your new site or hire a website designer to build one for you.
Step 2. Hire a Registered Agent
Your LLC needs a registered agent to receive any legal or government documents, such as service of process or annual renewal forms, on behalf of your business. While California does allow you or another LLC member to act as your LLC’s registered agent, anyone stepping into this role must be at least 18 years of age. They will also need to have a physical address within the state.
You should be aware that the name and address of whoever you choose to be your registered agent will become part of the public record. This often gives rise to privacy concerns. Many LLCs opt to hire a registered agent service instead. The price range is usually between $50 and $150 per year, and some companies even provide the first year for free if you use their business formation services. Be sure to do your due diligence before hiring anyone to ensure you get your money’s worth.
Step 3. File Your LLC Paperwork
You have multiple options when you’re ready to move forward with your California LLC formation:
- Online Filing: The fastest way to get your LLC up and running in California is to file your LLC paperwork online.
- File by Mail: To file by mail, download and fill out Form LLC-1 (Articles of Organization). You will need to include either a check or money order in the amount of any applicable fees, made payable to the Secretary of State.
- File in Person: You can also submit your paperwork in person. However, if you wish to file in person, you’ll need to pay a $15 handling fee.
The LLC filing fee in California is $70. If you want a certified copy of your registration, that’s an extra $5.
Foreign LLCs (LLCs formed in another state that wish to do business in California)must register by completing and submitting Form LLC-5 (Application to Register a Foreign Limited Liability Company). If you have a foreign LLC, you’ll also need to submit a valid certificate of good standing issued by the state where you formed your LLC.
Step 4. Submit a Statement of Information (Form LLC-12)
Within 90 days of forming an LLC in California, the Secretary of State requires you to complete and file a Statement of Information online. This report asks for current information about your LLC, such as the names of members, the business’s purpose, the business address, the registered agent name and more. You’ll need to pay a filing fee of $20. You’ll need to complet a State of Information every two years after this initial filing.
Step 5. Get an Employer Identification Number (EIN)
While single-member LLCs with no employees aren’t required to have one, it’s usually a good idea to obtain an EIN for your LLC even if it’s not required. You can do it online for free through the IRS website.
There are a number of benefits to getting an EIN for your LLC, including:
- Banking: You’ll need to set up a separate business bank account for your LLC, and many banks will require your LLC to have its own EIN to open up an account.
- Business Permits or Licenses: Your LLC will need to have an EIN to apply for a business permit or license in California.
- Credibility: Having an EIN for your LLC can help your business establish more credibility, showcasing to potential clients, customers or employees that you are registered business.
- Privacy: Some companies require their vendors to include their EIN or SSN (Social Security number) on invoices. You can keep your SSN private in such cases if your LLC has an EIN.
Step 6. Pay Your Taxes
LLCs organized in California must file an LLC Return of Income Form 568 which serves as a master form that takes into account your LLC’s income, taxes, withholdings, the LLC fee and more.
California LLCs must pay the mandatory annual minimum franchise tax of $800, even if they’re not actively doing business in the state. Your first payment of this tax is due on the 15th day of the fourth month after the date you established your LLC. Subsequent yearly payments must be made by April 15 of each year.
Note, however, that LLCs formed on or after January 1, 2021 and before January 1, 2024 are exempt from paying this tax in their first year. Additionally, some LLCs with limited income may be eligible for a waiver or reduced tax rate. You should check with the state each year, to see if there are any changes to the requirements.
Single-member LLCs in California have the benefit of pass-through taxation where the LLC’s income and losses are reflected on the owner’s tax return. The entity itself is not taxed.
This works similarly with multi-member LLCs, however, each member must file a federal partnership return by submitting Form 1065. In this form, all members declare their respective share of income and losses.
LLCs in the state of California that hire employees must withhold not only federal and state income tax but also payroll, Social Security and Medicare taxes.
If your LLC sells taxable goods and services in the state of California, you’ll need to pay sales tax to the state and potentially to the city or county, depending on the jurisdiction your LLC is operating in.
Step 7. Create an LLC Operating Agreement
While you won’t need to file an operating agreement with the Secretary of State, you are still required to have one. An operating agreement is essential to running your LLC, as it sets out the organizational or ownership structure of your LLC and its operating rules. A detailed operating agreement also lends legitimacy to your LLC. Once you’ve created an operating agreement, you should keep it with all your other LLC records.
Step 8. Keep Your Business Compliant
After you’ve completed the tasks listed above, you’ll also need to stay on top of everything you need to do each year to stay compliant with state requirements. For example:
Registered Agent: You should ensure your registered agent is always physically available to receive delivery of important legal and government communications during regular business hours. As we mentioned previously, many companies turn to registered agent service providers to help them stay on top of this requirement.
Licenses and Permits: Depending on the type of business your LLC conducts, you may need to apply for specific business licenses or permits. California provides a tool that enables you to search for any permits you may need.
Statement of Information Filing: Because you only need to file a Form LLC-12 (Statement of Information) every two years after your initial filing, it’s a good idea to make note of when your next filing is due, so you can keep track of the next filing deadline.
Annual Minimum Franchise Tax Payments: As mentioned above, after your initial tax payment in your first year of business, the minimum franchise tax of $800 is payable by April 15 of every year.
