Navigate the process of creating an LLC in California, from naming your entity to fulfilling state tax obligations. Highlighting key steps including selecting a registered agent and drafting an operating agreement.
By Brad Nakase, Attorney
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You must give your LLC a distinctive name. The name of an LLC reserved or filed with the California Secretary of State (SOS) records, whether domestic or foreign, cannot be the same or too similar. Additionally, the public cannot be misled by your name.
You can use the SOS business name database to see if your chosen business name is available. You have up to sixty days to reserve your company name before registering it. A Name Reservation Request form can be mailed to the Secretary of State office or reserved online through Bizfile Online.
A California LLC’s name has to include one of the following:
It is possible to shorten the terms “company” and “limited” to “co.” and “ltd.” The terms “trust,” “bank,” “trustee,” “inc.,” “incorporated,” “corp.,” “corporation,” “insurance company,” “insurer,” and any other terms implying that the LLC is in the insurance field are also prohibited from being used in the LLC’s name.
Visit the SOS’s business entity names homepage and publication for business entity names for additional guidance on picking a name for your LLC.
An agent (sometimes called a “registered agent”) is required for process service for each California LLC. A certified corporation or individual that consents to take court documents on behalf of the LLC in the event that it faces legal action is known as a registered agent. An LLC is not permitted to act as an agent for itself. Before being designated, the agent must consent to receive service of process as an agent of the LLC.
The LLC’s articles of organization must include each agent’s street address (cannot be a P.O. box) and that they are residents of California. The agent does not need to be connected to the LLC. They can be members, managers, or officers of the LLC. The Secretary of State keeps a list of private service firms (also known as commercial registered agents) who will function as service of process agents. This service comes with a fee.
Articles of organization must be filed with the Secretary of State in order to establish a California LLC. The articles have to contain:
Using Bizfile Online, you may electronically submit your articles. A completed Form LLC-1 can also be mailed or delivered in person to the SOS. The fee for filing was $70 as of 2023.
There are two types of LLC management: manager-managed (run by managers) and member-managed (by the members of the LLC).
The majority of little multi-member LLCs decide to have member management in-house. However, LLCs have the authority to name management or a handful of managers to run the business, akin to how a corporation is run by its board of directors. Important decisions like taking out a loan, buying real estate, or altering strategic goals are put to a vote by managers. Managers may be members of the LLC or nonmembers in a manager-managed LLC.
Before deciding, compare LLC and Inc to understand their distinct legal and tax implications,
California does not mandate that an LLC have an operating agreement. While it’s not necessary, having an operating agreement for your business is strongly advised.
An internal document known as an operating agreement specifies the internal management structure of your LLC. It lays forth the managers’ and members’ obligations as well as your management plan for the LLC. This document, which demonstrates that your LLC is a legitimately independent business company from the owners, can also aid in preserving your limited liability. California’s LLC statutes will govern your LLC’s operations if you don’t have an operating agreement.
There are online LLC operating agreement templates that you may use as a basis for your own.
Within ninety days following the filing of their articles of incorporation in California, all LLCs, whether California-based or not, are required to submit a Statement of Information (Form LLC-12) to the SOS.
Every two years (biennially) following the first statement, a Statement of Information has to be submitted. The first five calendar months and the month in which the articles of organization were submitted make up the filing period. In the event that your articles were filed in March, for instance, you will need to file your biannual reports between October 1 and March 31 each of the next two years.
Form LLC-12 can be sent by mail or delivered in person to the SOS, or the statement can be filed online via Bizfile Online.
The informational statement needs to contain:
The California Franchise Tax Board (FTB) receives California tax payments from all LLCs, including overseas LLCs, if both of them are not taxed as corporations. Instead, they are taxed as partnerships or sole proprietorships (disregarded entities) if they are registered, incorporated, or do business in California. (LLCs subject to corporation tax laws in California must abide by these regulations.)
In the event that your LLC was created in California in 2021, 2022, or 2023, you will be eligible for a one-year exemption from the state’s $800 minimum yearly franchise tax during the LLC’s first taxable year. All limited liability companies would be liable to the $800 yearly minimum franchise tax beginning in the second taxable year and continuing until they were dissolved correctly.
The minimum franchise tax that must be paid annually by all LLCs operating in California is $800 (as of 2023). Form 3522 (LLC Tax Voucher) sends the yearly tax to the FTB.
LLCs are also required to pay an extra fee depending on their total yearly income (2023) if their net income exceeds $250,000.
The deadline for filing California Form 568, LLC Return of Income, is the fifteenth day of the third month following the end of the LLC’s taxable year, which, in most cases, falls on March 15th. Certain LLCs with a single member are exempt.
Further details regarding California LLC taxes, together with links to the required forms and fee schedules, can be found on the LLC webpage on the FTB website.
You must meet any additional regulatory and tax obligations that relate to your LLC. These could consist of the following:
There is plenty of information to help you create your business on the SOS website. For assistance with forming an LLC, visit the SOS’s starting a company webpage. On the left side of the page, you will also find useful subjects such as samples, forms, and fees; name reservations; filing advice; commonly asked questions; and resources.
Speak with a California business attorney if you want individualized legal assistance. They can assist you with naming, LLC setup, formation document drafting, and navigating state laws, rules, and requirements.
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