Forming an LLC in California is often considered to have the advantage of offering owners the same limitation of liability as a corporation, but with less complexity. An LLC has an advantage over every other type of business structure when it comes to options for federal tax purposes.
Forming your business can seem overwhelming, especially with the number of forms and requirements involved. Fortunately, we are here to walk you through every step on how to start an LLC in California and ensure nothing is missed.
Step1: Name your LLC in California
The first step you will need to take before forming your LLC in California is to give it a name. It is important to have a name that isn’t already in use, or too similar to an existing name. Before deciding on a name it is also good practice to ensure the URL and domain name are available. Even if you don’t plan to start a business website today, you may want to buy the URL in order to prevent others from using it.
Some of the laws regarding naming in California are that your name must include the phrase “limited liability company,” or one of its abbreviations or words: “LLC, L.L.C., Limited, Ltd., Company or Co. Your name must not include any words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
Step 2: Appoint a registered California Agent
You are also required to appoint a registered California agent for service of process. A registered agent acts as your LLC’s main point of contact with the state. This is a person or business entity responsible for receiving important tax forms, legal documents, a notice of lawsuits, and official government correspondence on behalf of your business. An Agent of Service of Process must be a full-time resident of California or a corporation. You may elect an individual within the company including yourself. It is also possible to elect a friend you trust, as long as the person is 18 years or older, has a physical address in California, and is always available during normal business hours to receive service of process in person.
Step 3: File the Articles of Organisation
You then need to register your business by filing the Articles of Organisation with the Secretary of State. This is a legal document that allows you to officially form your business. You can apply online, by mail, or in-person. All California LLCs are also required to file an Initial Statement of Information (Form LLC-12) with the California Secretary of State within 90 days of forming your LLC.
Step 4: Form an operating agreement
An operating agreement is required when forming an LLC in California. This is a legal document outlining the ownership and operating procedures of an LLC. A comprehensive operating agreement ensures that all business owners have a thorough understanding of how the business works and reduces the risk of future conflict. Most small multi-member LLCs choose to be managed directly by their members, but LLCs can appoint a manager or small group of managers to manage the LLC. Managers vote on important issues such as taking out a loan, purchasing real estate, or changing strategic plans.
Step 5: Apply for an EIN
Finally, an EIN number is required in California if you would like to open a bank account for the company. It is also needed for Federal and State tax purposes and to hire employees for the company. An Employer ID Number is used to identify a business entity and keep track of a business’s tax reporting. It is essentially a social security number (SSN) for the company. An EIN is obtained from the IRS (free of charge) by the business owner after forming the company. This can be done online or by mail.
Setting up a new LLC in California is not too complex and there are several guides that can guide you along the way. Be sure to understand the differences between different states and pick the one that is best for you.