How to Form an LLC in California
Introduction
Forming a Limited Liability Company (LLC) can be easy in California. The state has made it easy for entrepreneurs to form LLCs, and most of the paperwork is handled by the state or online. You will still need to file some things with your county clerk’s office, but everything else can be done at home or online.
What is an LLC?
An LLC is a hybrid of a corporation and a partnership. Like corporations, an LLC can be owned by one or more people. Like partnerships, all members of an LLC share equal liability for their business debts. In this sense, it’s similar to an S-corporation (which is also popular among small businesses) but without all the formal requirements that come with being incorporated (like holding annual shareholder meetings).
Liability protection: Members of LLCs enjoy limited liability protection under federal law—meaning if your business fails and owes $50K in debt, your personal assets won’t be touched to pay off those debts if they’re not related to your failed venture. This can make starting up an LLC appealing if you have valuable personal property that could get seized by creditors in the event of bankruptcy.
Tax advantages: While many businesses choose to incorporate because they want additional financing options or greater legal protections from lawsuits, forming as an LLC comes with one major tax advantage over other types of companies: pass-through taxation allows every member owner of an entity taxed as pass through (such as sole proprietorships) to report profits on their personal tax returns instead of filing separate corporate income taxes each year which would require more administrative overhead than most small businesses need right now
Why form an LLC in California?
An LLC is a much easier legal structure to form than a corporation, which makes it even more appealing in California. The reason for this is that California does not require you to have an operating agreement when you form an LLC. In fact, most people don’t even know what an operating agreement is!
However, if you want to create one for your business so that there are rules set out about how the company should operate and make decisions, then it’s easy enough to do that too—just go ahead and write up some provisions as part of your articles of organization (the document that creates your LLC). Then all you need do is file those documents with the state along with any other required paperwork (like a tax ID number or proof that you’ve paid fees) and voilà: instant incorporation!
Why not form a California S-Corp or C-Corp?
There are a couple of reasons why you might want to form an LLC instead of an S-Corp or C-Corp:
- Increased risk of liability. If you’re the sole owner and manager, you are personally responsible for any debts or liabilities incurred by your company. In contrast, with an LLC, only your business is liable for these debts and liabilities (unlike regular corporations where shareholders can be held personally liable). However, this protection doesn’t extend to what happens if someone goes after your personal assets (e.g., home or car). So it’s important to consider whether this increased benefit outweighs the cost in terms of money and time it takes to start up an LLC compared with other types of companies available in California (more on that below).
- Limited liability protection is only for owners, not just companies themselves. If someone sues you personally over something related exactly how much money they lost due specifically because some action was taken by one person who was working directly under another person — then yes! We’ve seen cases where employees were sued successfully because their bosses didn’t give them clear instructions about how certain tasks should be done correctly; those losses could have been avoided had someone else made sure everything went smoothly beforehand.”
Assumptions about California LLCs and Taxes
You can form an LLC in any state, but you will need to register it with the state.
The state will require you to file Articles of Organization and a Registered Agent.
What are the steps to forming an LLC in California?
Forming an LLC in California is easy, and it doesn’t require a lot of time or money. The process has three main steps:
- Choose a name for your company
- Gather the necessary information and paperwork to register your new business entity with the state government
- File the paperwork with the Secretary of State’s office
Requirements for a Name for the California LLC
When you’re choosing a name for your California LLC, there are some important considerations to take into account. First, the name must be a legal name that is distinct from any other business entity in California. It also cannot contain any words that are prohibited by law or would be misleading to customers (such as “diamonds” if you sell office supplies). You should also verify that there isn’t already an entity with this name—a quick search on the Secretary of State website can help you with this step. Finally, even if your proposed business name isn’t identical to another company’s trademarked one, it may still risk infringement if it’s too similar enough for confusion among consumers; make sure yours doesn’t fall into this category!
Selecting a Registered Agent for the California LLC
Now that you know what an LLC is and how to form one in California, it’s time to learn about the most important part of your new company: a registered agent. The registered agent is the person or entity that will be responsible for receiving and processing legal documents on behalf of your LLC. These include official communications from courts, state agencies and other entities related to lawsuits brought against your LLC.
A registered agent can be any business entity that has its own physical address in California (or anywhere else). It doesn’t have to be a lawyer or law firm—it could even be a family member who lives in California. There are lots of ways for finding a registered agent for your new LLC:
- Call around and ask friends or colleagues if they know anyone who handles this type of work regularly
- Look through online listings such as Yelp or Google reviews if possible (eBay reviews might also work well here)
Filing the Articles of Organization with the State of California (Form LLC-1)
Once you’ve prepared your Articles of Organization, you’ll need to file them with the state of California. You can submit the form online or by mail. If you’re mailing in your paperwork, make sure that your address is correct on Form LLC-1 (and on any other forms), and include a check for $70 made payable to “State of California.” Mail this to:
The Secretary of State
1500 11th Street, 4th Floor
Sacramento CA 95814-3231
Registering With the State Tax Board (Form 568)
Form 568 is the California tax registration form. It’s due within 90 days of forming your LLC, but there’s no rush to file it right away: you have until the first day of the month following when you actually formed your LLC in order to file Form 568 electronically. You can file Form 568 using CalFile or find out more information about this process at [the State Board of Equalization website](https://www.boe.ca.gov/online_services/calfile).
Operating Agreement for the California LLC (not required)
The operating agreement is a document that details how the LLC will operate. It’s not legally required, but it’s a good idea to have one so that you can avoid future disputes between members. Here are some things you should include in your operating agreement:
- The name and address of the LLC’s registered agent (the person or corporate entity who will receive legal notices on behalf of your LLC)
- A statement indicating that any member can revoke their membership by giving notice to other members and/or an officer or manager
- A method for adding new members, such as by majority vote of existing members or unanimous consent from all current members
EIN Number (Federal Tax ID Number) for the California LLC
If you have a business in California, you must have an EIN number. The IRS calls this the Federal Tax ID Number. It is vital for your business to have one, because it will help the IRS track what income tax you owe and apply it properly to your tax return.
The easiest way to get this number is by applying online through the IRS website. Once they approve your LLC application, they will send you an EIN within 7-10 days of submitting your application. If you already know that creating an LLC is what’s best for you but don’t know how much it costs or how long it takes, check out our guide with all those answers here: How Much Does An LLC Cost?
If for some reason you don’t receive an EIN from the IRS after seven days from when they approved your application (which shouldn’t happen if everything went well), then contact them directly by calling 800-829-4933 or faxing 202-353-6050 (international) and ask them about why this happened.
Finishing Up Your California LCC Formation
- Sign and file the articles of organization.
- Register with the state tax board.
- Get an EIN number from the IRS, if your LLC will be taking in more than $5000 a year in income (this is not required if you aren’t making any money).
Forming an LCC doesn’t need to be difficult. Here’s how to do it.
You can form an LLC in California in a few hours, without the hassle of hiring a lawyer. You don’t have to pay any fees to the state or federal government; all that’s required is filling out some forms and sending them off.
The process is simple: fill out the forms below and send them to [email protected]
Once they receive your application, they will review it and make sure it meets all state requirements before giving you approval. If there are any changes needed (which is rare), they will send instructions on how to fix those issues. If everything checks out, within a few days you will receive approval from them by email!
Conclusion
We’re glad you decided to learn more about LLCs and how they work. We hope you’ve come away with a better understanding of what an LLC is, why it might be the best fit for your business and how to form one in California. If you still have questions or need help setting up an LCC in California, feel free to contact us!
