To start an LLC in California, you may hire a lawyer or do it yourself by going to the Secretary of State’s website and registering your business as an LLC by filing the Article of Organization and following the instructions.
Author: Brad Nakase, Attorney
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In a nutshell, to start an LLC, you’ll need to choose a name for your business, select an agent for service of process, file an LLC Articles of Organization with the state, draft an operating agreement, and obtain an Employer Identification Number (EIN) from the IRS.
It is common for small business owners to create an LLC, or limited liability company, because of the protection it offers. An LLC is a separate legal entity, meaning that it can assume its own debts and obligations. This means that the owners, also known as members, of the LLC are not personally responsible for its debts or obligations. So, if the company ever faces a lawsuit or other legal problem, then the owners will not lose their homes, cars, personal savings, or other assets in a judgement.
In order to form an LLC, a business owner will need to file paperwork with the state in which the company is located. Depending on the state, there are different rules and procedures that must be followed. That said, there are several basic steps that can start your LLC, regardless of the state you live in.
In this article, our LLC attorney discusses how to start an LLC in California as follows:
To start an LLC, first choose a name for your LLC. Generally, states do not allow two different LLC companies to have the same name, or a very similar one. This means, for example, that if there is a Kay’s Cookies, LLC in San Francisco, there can’t be a Kay’s Cookies, Inc. in Los Angeles. There are also restricted words, such as “bank” and “insurance.”
It is possible to search existing business names using a state’s online database. This will help determine whether a prospective name is available for use. It is important to always check the availability of a name prior to filing LLC paperwork, or the application could be rejected.
It would also be a good idea to see if any local businesses have a similar name to one’s own business. Choosing a unique name is important for one’s business because it can help avoid confusion or trademark infringement lawsuits.
Once a business owner has selected a unique and available name, it would be wise to buy a domain name that matches the business.
The second step to starting an LLC is reserving a company name which creates your intention of using the LLC name and prevents others from using it. A business owner might know an LLC name but is still waiting to be ready to file the LLC documents. It is still possible for them to reserve the name for later use so that no one else can take it. Almost every state will allow a business owner to reserve a name by filing the relevant form and paying a name reservation fee. The reservation period length and fee amount will vary based on the state.
As part of starting an LLC, almost every state requires you to designate a registered agent. A registered agent is a person or entity you have appointed to handle necessary government, tax and legal correspondence about your business. A registered agent is an individual who agrees to receive legal materials on behalf of the LLC and transfer them to the relevant person at the company. These legal materials might be lawsuits, subpoenas, or other official legal or government documents. Typically, a registered agent can be anyone over the age of 18. Some companies offer registered agent services for a price.
An LLC’s operating agreement is a document that outlines the business’ financial and functional decisions, including rules, regulations and provisions. The purpose of the LLC Operating Agreement is to govern the business’s internal operations in a way that suits the specific needs of the business owners. The form includes descriptions of ownership interests, voting procedures, allocations of profits and losses, meeting procedures, operational plans, the rights of members, and a method for potential dissolution.
Usually, the operating agreement is not filed with the state and may not even be legally required. That said, it is still a helpful method by which businesses can define responsibilities and rights.
While each state has its own forms and procedures for creating an LLC, in general it is necessary to file articles of organization. This document includes the following information:
The owner of the LLC must sign the paperwork and, in some states, so must the registered agent. It is necessary to file the LLC organizational documents with the relevant secretary of state in most cases. But there are some states that have a different department that deals with these filings. There is a fee for filing this document, though it varies from state to state.
Once the LLC’s articles of organization are filed and approved by the state, the state will issue a certificate that formally acknowledges the LLC’s existence. In most states, an LLC Certificate of Organization is a legal certificate from the Secretary of State showing that your LLC was formed. This means your LLC will be authorized to conduct business. After receiving this certificate, a business owner can get a tax ID number and business licenses or permits. They may also set up a business bank account.
If the LLC plans to do business in more than one state, then it may be necessary to register to conduct business in other states. In order to register, the owner of the business will need to complete and submit paperwork that is similar in nature to the initial articles filed when forming the LLC. For each state the LLC does business in, a separate registered agent is required.
While LLCs are a popular option for business owners and are relatively easy to create, it is essential to fill out the necessary paperwork and have a plan for operation.
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