It’s no secret that California has been a preferred choice of LLC for new businesses, especially tech startups.
To form an LLC in California, you’ll need to complete several registration steps with the authorities, plus figure out some operational aspects of your new business.
So if you’re considering forming a limited liability company (LLC) in California, you’d be in good company.
Why go for an LLC?
Because this business structure extends protection over your personal assets in case your business gets sued. Also, operating as an LLC improves your credibility with customers when compared to a sole proprietorship.
This guide offers step-by-step instructions for completing LLC formation in California and ensuring compliance.
8 Steps to Open an LLC in California
- Step 1: Name Your LLC
- Step 2: Appoint a registered agent
- Step 3: Draft and Submit the Articles of Organization
- Step 4: File a Statement of Information
- Step 5: Create an Operating Agreement
- Step 6: Get an Employer Identification Number (EIN)
- Costs to Set Up an LLC in California
- Last Steps
Step 1: Name Your LLC
There are several naming guidelines you need to follow when forming an LLC in California. The business name cannot include the following words:
- Insurance Company
At the same time, your business name must include either of the following:
- Limited Liability Company
The abbreviation of Ltd. for Limited and Co. for Company are permitted.
Finally, make sure that your selected name isn’t taken by another business or interferes with any registered trademarks/service marks. You can run a name search on the California Secretary of State website.
Also, if you’re still in the process of preparing other paperwork but have already found a name, you can file a Name Reservation form and pay a $10 fee to “park it” for 60 days.
Step 2: Appoint a Registered Agent
California (like most states) requires an agent for service of process (also known as a registered agent) so that court papers can be served in the event of a lawsuit.
You can list yourself as a registered agent for your business, add an employee, or a trusted third party. The requirement is that the provided registered agent’s address must be a physical business address (not a P.O. box), and the person must be at least 18 years old. There are no extra fees involved in adding a designated registered agent for your business.
Alternatively, you can hire a professional registered agent service to handle the paperwork for you.
In this case, you don’t need to disclose your home address (if you operate from home), constantly remain present at your business location, or interact with the process of service documents.
The fee for hiring a registered agent service in California ranges from $100 to $300.
Step 3: Draft and Submit the Articles of Organization
Articles of organization are the main company formation document for California LLCs.
To obtain this document, you’ll need to file Form LLC-1 with the California Secretary of State. You can do so by mail, online, or in person. The fee is $70 for mail and online filings and $70+$15 for in-person drop-offs if you want to get a priority over mailed-in submissions.
Once the document is approved, you’ll receive a free copy by mail. Certified copies cost $5 each.
Since the local SOS offices are pretty busy, they also introduced a two-step expedited fee scheme.
To expedite processing, you can first pay extra for rapid preclearance — verification of the provided details. The state fees are as follows:
- 10 Day Preclearance: $250
- 5 Day Preclearance: $300
- 72 Hour Preclearance: $400
- 24 Hour Preclearance: $500
Afterward, you can submit your precleared and approved documents for expedited 4-hour processing for another $500.
Alternatively, if you skipped preclearance, you can request standard expedited service for:
- $350 for 24-hour service
- $750 for same-day service
Finally, you can always check the current processing times on the SOC website for different types of submissions and determine whether you can wait or pay the rush fee.
Step 4: File a Statement of Information
Statement of Information is a document similar to annual reports. However, in California, you need to file it within 90 days of registering as an LLC. Then repeat the filing every two years after. Much of the content included is similar to what was included when filing the articles of organization.
Download Form LLC-12, pay a $20 filing fee, and you’re good to go.
Step 5: Create an Operating Agreement
Operating agreements set forth the rules and regulations that govern a business's internal operations. It’s a formal agreement between you and other LLC members on how major decisions will be made. Think management, profit distribution, investments, etc.
All California LLCs (including single-member LLCs) need to have an operating agreement in place per California Corporation's Code §17050. You’re not required to file an operating agreement with the California authorities when forming an LLC.
But you must maintain a written or oral version among your company records. An operating agreement is a binding contract, so it staves off any legal disputes later on.
Depending on the size of your business, you can either customize a free or premium template or consult with an attorney.
Step 6: Get an Employer Identification Number (EIN)
Obtaining an EIN with the IRS is a solid next step. To verify if/why you need one, visit the “Do You Need an EIN?” webpage on the IRS website. If you answer “yes” to any of the questions, then you’ll need an EIN.
Essentially, EIN is your business’s tax ID you use instead of your personal social security number to report federal taxes.
After completing the form (SS-4), the EIN will be issued immediately. The process takes about 15 minutes. You can also fax or mail Form SS-4. You can find information in regards to this on the filing instructions.
Costs to Set Up an LLC in California
The kind of business that you are forming as an LLC can have an impact on your total costs to open said business. All businesses will be assessed a $70 filing fee to register their LLC in the state of California.
If your business is a franchise, there is an $800 franchise tax that is applied to your costs. A statement of information will cost $20.
Now that you have officially formed your LLC, the next step is opening your business bank account. While not required, it’s highly recommended to register one as soon as possible so that business activity remains separate from personal.
Such a separation serves a dual purpose: it proves the business is truly a separate entity from the owner and facilitates accurate bookkeeping.
The LLC formation documents already completed (EIN, operating agreement, articles of organization) will likely be required by the bank of your choice to open your account.
Secure all permits and licensing that you need to have in place to be able to do business in the state of California. The location where you open your business, as well as the kind of business that you are choosing to open, will impact the permitting and licensing requirements related to your company.
Make sure that you are prepared for filing taxes. If you do not have the necessary experience to ensure that you will file correct business taxes, make sure to secure a skilled accountant or tax expert to work with you for this need.
Frequently asked questions (FAQ)
Below are some of the most frequently asked questions (FAQs) about forming an LLC in California.
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