8 Steps on How to Form an LLC in California

Brad Nakase, LLC Attorney

New business ventures come with sweeping passions and the itching desire to turn dreams into reality. There is nothing better than watching a mere idea grow into a multi-million-dollar enterprise. Growing a fruitful business involves copious amounts of decision making. The very first decision involves choosing between the two most common forms of business entities: Corporations and Limited Liability Companies (LLC).  Corporations are owned by shareholders whereas LLCs are owned by one or more individuals. Learning how lawyers form an LLC in California is similar to forming a corporation, albeit a few extra steps. This educational article is to highlight how any attorney form an LLC.

Disclaimer: The information on this page is for educational purposes. There are many nuances to LLC formation and compliance. Please retain a LLC formation attorney to form a LLC.

  1. Choosing a California LLC Name

The first step in forming an LLC is  selecting a name for the LLC. Unlike corporations, your company’s name must end with the abbreviations LLC or L.L.C. Giving your company a clear and powerful name will set it up for success. Once you have settled on a name, check the business name database in California’s Secretary of State website to make sure you didn’t copy someone else’s name. If your name is not in the database, reserve for 60 days maximum, to do this a Name Reservation Request form must be filed. Mail or hand deliver the form to California’s Secretary of State’s main office.

  1. Filing an Articles of Organization

The second step in creating an LLC in California, a lawyer must file Form LLC-1, also known as Articles of Organization. This is done with California’s Secretary of State main office. The form must include:

  1. LLC’s name,
  2. LLC’s purpose,
  3. Information on management of the LLC,
  4. LLC’s address
  5. The LLC’s registered agent’s name and their address.

This form can be completed online and mailed, or hand delivered to California’s Secretary of State’s office. There is a filing fee of $70, but for an additional fee you may request for expedited filing.

  1. Choosing An Agent For the LLC

To form an LLC, California LLCs need a registered agent for service of process. Agent for service of process can be a person or a company that will accept and receive legal papers on behalf of the LLC, in case they are sued. It is against the law for an LLC to serve as their own agent. If you choose an individual agent such as a member, manager, or officer of the LLC, they must be California residents and have their address in the articles of organization filed by the LLC.  If you can’t find an individual, there are many private service companies willing to act as agents for LLCs.

  1. Deciding on the LLC’s Management: Member v. Manager

Members usually manage small LLCs, but an LLC can also appoint its own version of board of company directors.  A small group of managers can oversee things like taking out loans, make changes to or change strategic plans, and/or purchasing of real estate.

  1. Operating Agreement for LLC

After the LLC is formed, a legal operating agreement establishes the ground rules for how the LLC will make decisions, be managed, and allocate profits. Although in few cases an operating agreements may not required, it is highly recommended.

  1. Filing Your LLC’s Statement of Information

Within the 90 days of forming an LLC by filing the articles of organization, the LLCs must file an LLC-12 form, a Statement of Information, with California Secretary of State. It must be filed again every two years after that. The filing must occur between the month when the articles of organization were first originally filed and five months prior. It costs $20 to file the form and it must be done online or be printed to be mailed to the California Secretary of State office.

The LLC’s Statement should include:

  • The name of your LLC and their Secretary of State file number
  • The Agent for Service of Process’s name and address
  • Your LLC’s principal executive office’s street address.
  • Mailing address of your LLC, if it is different from the principal executive’s street address.
  • The names and full business and/or residence addresses of any managers or chief executive officers. If there are no managers, put down each of the members’ name and business and/or residence address.
  • An email address that is valid to receive email notices for renewals and any notifications sent by the Secretary of State.
  • Your LLC’s principal business type and activity.
  1. Paying Your LLC’s State Tax Obligations

Taxes get a bit more complicated when it comes to LLCs. All LLCs are required to pay taxes to the FTB, California’s Franchise Tax Board. This is unless they have elected instead to be taxed as a corporation. In this case, the LLC would have to comply with the state’s corporation tax rules. To pay taxes, LLCs must either be conducting business in California or be organized and registered in the state.

Recently formed LLCs are provided with one-year exemptions. In an LLC’s first year that is taxable, the LLC is exempt from California’s minimum annual franchise tax of $800. This exemption serves to encourage people to start new businesses.

Annual Minimum Tax
California LLCs conducting business in the state are required to pay an annual $800 minimum franchise tax. Using a form 3522, the Limited Liability Company Tax Voucher, the annual tax can be submitted to the Franchise Tax.

For LLCs making more than $250,000 in net income are required to pay an additional payment, which is based on their total income annually.

Procedures For Filing
California LLCs are required to file form 568, which is the Limited Liability Company Return of Income. The form must be filed by the 15th day of the fourth month after the closing of the taxable year of the LLC. It tends to be April 15 for many LLCs. The Limited Liability Company Tax Booklet on the California Franchise Tax Board’s online site includes the necessary forms 568 and 3522.

  1. Complying with Tax Requirements

The last step on how LLC lawyers for LLLC is complying with tax law. Below are some other tax requirements as well as regulatory requirements you’re your LLC may need to comply with.

When an LLC has more than a single member, the LLC must obtain an IRS Employer Identification Number (EIN). This applies even if you don’t have any employees. If your LLC only has one member, you will still need an EIN if you plan on hiring employees or elect for the LLC to not be taxed as a sole proprietorship and to be taxed as a corporation instead. An EIN is obtainable by applying online or the filing of an IRS form SS-4, both done and available on the IRS website, with no filing fee required.

Business License
What kind of business does your LLC do? Depending on your answer to this question, additional local and/or state business licenses may need to be obtained. To learn more about this, go to California’s Office of Business and Economic Development site online.

Sales and Employer Taxes
 A formed LLC may require the LLC to be registered with other California taxing authorities. For example, an LLC registering with the California State Board of Equalization may be needed to collect sales tax. This can be done online or directly at a BOE field office. When it comes to employer taxes, you must register with EDD, California Employment Development Department.

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