How to Start an LLC in California in 2024

California is known for its varied terrain, which includes mountains, beaches, and deserts. In addition, the Golden State has a varied economy, which makes it an excellent location for business. If you’ve decided to launch a company in California, think about creating an LLC. It’s simple for businesses to succeed in California. As you proceed through the business formation process, make sure to read through our thorough step-by-step guide on how to build your own LLC in California and review our answers to frequently asked questions.

How to Start An LLC in California in 5 Steps

Are you still wondering how to form an LLC? You will be guided through it by our guide. For further assistance, post-filing considerations and commonly asked questions are offered at the conclusion.

1. Choose a Name for Your California LLC

The enjoyable part is the first step: Give your LLC a name. There are a few criteria California has for business names:

• Your name ought to stand out from those of other current Californian firms.
• The words “limited liability Company” or “LLC” must appear in it. It is possible to shorten the terms “limited” and “company” to “Ltd.” and “Co.”
• It cannot contain terms like “treasury” or “state department” that might lead people to mistake your company for a government agency.

Check if your name is accessible by using the California Secretary of State’s website to do a California business name search. You will have to select a new name if your current one is already taken. Furthermore, examine California’s comprehensive list of naming requirements to assist you in selecting a suitable name and differentiating between California LLC names that are similar.

LLC Name Reservation

Using California’s online company filing system, you may reserve your California LLC name for up to 60 days if you’ve chosen a name that is available but isn’t ready to submit the other documentation. In this manner, you may get on with the planning without having to worry about someone else using your identity.

Trade Name and DBA Registration

Some companies operate under “trade names” or “DBAs,” which are official LLC names that are registered under. “DBA” stands for “doing business as.” This is effectively a business alias for you where the LLC identification is not required. Using the same LLC searching technique, you may discover which other DBAs are in use on the CA secretary of state’s website.

2. Select a Registered Agent

A registered agent: what is it? A registered agent is also referred to as an “agent for service of process,” as they are termed in California, for LLC purposes. This person or organization accepts legal and tax paperwork on the company’s behalf.

Your agent needs to be at least eighteen years old and reside in California at a real location, not a P.O. box. The agent may be an officer, manager, or member of the LLC, or they may not have any connection to the business. As its registered agent, the LLC is unable to act.

To stay on top of these crucial files and paperwork, a lot of company owners choose to pay an annual fee to hire a California registered agent service. To free up your time to concentrate on your business, this service will be accessible to accept service of process and other crucial papers during regular business hours. To avoid having to disclose their private address to the public, some firms also want to employ services.

It should be noted that if you want to continue working remotely, you may also get a virtual address for LLC mail and advertising, which is a real street address where you can receive mail. You don’t have to pay rent to show a local address.

3. File Your LLC Paperwork

The articles of organization, also known as a certificate of formation, are the only documents that most states require you to file to formally establish an LLC. The articles of organization and a statement of information must be filed at two distinct periods according to California law. In this case, state fees will also need to be paid.

File the Articles of Organization

Your California articles of incorporation (also known as Form LLC-1) must first be filed. The following data are requested on this form.

• Name of LLC and address for company
• Name and address of the registered agent
• if the LLC will appoint specific members or engage outside managers (a “manager-managed” LLC) or if the members will run the LLC collectively (a “member-managed” LLC)

Form to File	Articles of Organization (LLC)
How to File	Online: CA Secretary of State portal (select Articles of Organization – CA LLC and create a user account) Mail-in: Secretary of State Business Entities Filings P.O. Box 944228 Sacramento, CA 94244 In Person: 1500 11th Street Sacramento, CA 95814 (additional $15 handling fee if submitting in person)
Filing Fee	Filing fees waived for period July 1, 2022 – June 30, 2023

File the Statement of Information

You can legally create an LLC as soon as the state approves your articles of incorporation! Additionally, within ninety days of your LLC’s legal creation, California requires you to file an initial “Statement of Information” with the state. If you want to keep doing business in California, you will need to renew the original Statement of Information every two years. A “Biennial Report” is a sort of yearly reporting that may be completed with Form LLC-12. The following details need to be on this form:

• Name of your LLC and entity number issued by the California Secretary of State
• Your agent’s name and address for process service
• An explanation of the kind of enterprise or services your LLC will offer
• The main executive office of the LLC’s street address
• If the postal address of the LLC differs from the address of its main executive office
• The names and addresses of any managers or chief executive officers (if no manager has been named, supply each member’s name and address, either at work or at home)
• If the LLC wants to receive electronic notices and notifications from the Secretary of State, a working email address.

Form to File	Initial Statement of Information (LLC)
How to File	Online: CA Secretary of State portal (login to your account and search for your business) Mail-in: Secretary of State Business Entities Filings P.O. Box 944228 Sacramento, CA 94244 In Person: 1500 11th Street Sacramento, CA 95814 (additional $15 handling fee if submitting in person)
Filing Fee	$20

4. Draft an LLC Operating Agreement

California is among the five states that mandate the creation of an operating agreement for enterprises. Owners of an LLC are required to have one, preferably in writing, before or after incorporation. This document describes the ownership structure and operating guidelines of your company. Important firm details including the roles and responsibilities of management and members, the allocation of profits and losses, and buyout policies should all be covered.

Additionally, the operating agreement fulfills a few crucial functions that should make it a top priority for your startup company:

• An operating agreement clarifies in writing the members’ intention to restrict their responsibility by creating an LLC; otherwise, the organization of your company may appear confusing or imprecise to an outsider.
• It formally records and explains any agreements made between the members (such as the total amount of money each member has paid to the LLC), which can help avoid future misunderstandings and offer a strong framework for settling disputes.
• It guarantees that California will handle your company as an LLC.

Once an LLC’s members sign an operating agreement, it becomes legally binding even if you are not required to register it with the state. The agreement should be kept on file with the LLC’s other formal documents in a signed copy.

The following details are required to be included in your operating agreement for LLC purposes under California Revised Uniform Limited Liability Company Act:

• Relationships between members and the limited liability business as well as among members
• The responsibilities and powers that come with this position for an individual acting as a manager
• The limited liability company’s operations and how they are carried out
• How and when the operating agreement can be amended?

5. Obtain Tax Identification Numbers

Paying taxes to the federal and state governments is a necessary part of conducting business. For this reason, you probably require a tax identification number from both the federal and state governments.

California Business Entity Number

Your LLC articles of formation will be accepted by the state, and you will receive a 12-digit Secretary of State Business Entity number. This number is what you’ll use to fulfill annual filing requirements and confirm the legitimacy of your company with the state of California.

Federal Employer Identification Number (EIN)

If you want to recruit staff or have more than one member, you will also require a federal EIN. For your company, an EIN is similar to a Social Security number.

It could be beneficial for you to acquire an EIN even if your LLC is a sole proprietorship without any workers. If not, you could be contacted for commercial purposes and requested your personal Social Security number, which might expose you to identity theft. This number can be acquired for you by an LLC creation provider, frequently for a cost.

What Are The Pros and Cons of Starting an LLC in California?

In California, there are benefits and drawbacks to forming an LLC. Here are some benefits and drawbacks to take into account when launching a new company in California.

Pros	Cons
LLC owners are not personally liable for business debts and liabilities	California charges an annual minimum $800 franchise tax for LLCs, which is higher than most other states
LLCs are not taxed at the entity level so you avoid double taxation	California has stricter operational compliance rules for LLCs compared to other states
LLCs can choose to be member-managed or manager-managed

The Cost of Forming an LLC in California

Business owners in the Golden State should budget heavily if they want to form an LLC. California levies taxes and fees on newly established enterprises, which may add up rapidly.

The initial LLC filing costs seventy dollars, according to the California Secretary of State. The greatest recurring expense for an LLC is the California franchise tax, which is at least $800 per year. This minimal tax applies to new businesses as well, even ones with no revenue. Additional revenue-based fees start to apply after earnings surpass $250,000. Aside from state fees, budget for legal and accounting advice to guarantee full compliance with California’s complex LLC regulations. The price of drafting an operating agreement and obtaining any necessary business licenses and permissions should also be taken into consideration.

What is The Cheapest Way To Start a California LLC?

Managing the formation process yourself is an affordable way to incorporate an LLC in California. The do-it-yourself method comprises reading up on the required actions, drafting and submitting the relevant paperwork, such as the Articles of Organization, to the California Secretary of State, and paying the $70 state filing fee.

Numerous online LLC formation providers will prepare and file the required documentation on your behalf for a basic formation package that costs $0 (plus the $70 state filing fee for California). Among these services, Zen Business stands out for providing a good amount of value at a reasonable price. Its basic package even includes a registered agent service, which is essential to keeping your LLC in compliance.

You may cut down on the expenses of forming an LLC in California by combining a do-it-yourself strategy with the use of inexpensive or free internet resources and thinking about using online LLC formation services for more complicated parts of the procedure.

What Do You Need to Do Before Starting a California LLC?

Congratulations on deciding to create your California LLC! To position yourself for success, it’s a good idea to conduct some research and make some business plans before you get bogged down in the formalities of filing papers with the Secretary of State’s office.

Do your market research. Examine comparable companies in your neighborhood to help you develop a winning strategy against your rivals.

Decide on a strategy. Establish some benchmarks for when your business will turn a profit and devise a plan that will bring you there.

Create a business plan. Put everything into action by creating a business plan that contains crucial information regarding financing, marketing strategy, market research, and other aspects that will make your new venture successful.

LLC Requirements in California

Creating an LLC in California entails a few procedures, one of which is gathering the required paperwork. The main documents are listed below, along with a synopsis of each:

Articles of organization: In California, your LLC is formally established via these basic documents. It contains fundamental details including the LLC’s name, mission, and registered agent’s name and address.

Operating Agreement: Although not required in California, it is strongly advised to have one. It describes the LLC’s ownership structure and operational practices.

Employer Identification Number (EIN): The EIN, which is obtained from the IRS, is necessary for tax purposes and must be obtained if the LLC employs people or has more than one member.

Statement of information: This document, which was filed with the California Secretary of State, offers up-to-date management and contact details.

Make sure the LLC’s name is distinct and conforms with California naming regulations before submitting this paperwork. The LLC must choose a registered agent, who will serve as the formal liaison between the state and the LLC.

Additional California LLC Resources

California provides small company entrepreneurs with a range of services to help with LLC creation and subsequent business growth. The state has a strong ecosystem to encourage entrepreneurship, ranging from organizations that give financial and operational help to internet portals that offer step-by-step instructions on legal compliance. California is therefore frequently included among the best states in which to form an LLC.

Furthermore, the official website of the state and its associated organizations provide vital information for comprehending the regulatory environment and gaining access to company growth tools.

The following is a list of beneficial state websites for Californians launching and expanding a business:

• The Business Programs Division of the California Secretary of State’s website offers details on business entities, registrations, and compliance.
• The California Business Entities Portal serves as a one-stop shop for entrepreneurs seeking information on state permits, business registration, and laws.
• The Governor’s Office of Economic Development and Business (GO-Biz): Examine a variety of services, such as financial aid and help with permits.
• Small company entrepreneurs in California may get training, research support, and consultation from SBDCs, or California Small Company Development Centers.
• California Tax Service Center: Compile state tax information that is pertinent to small enterprises and offer tax management tools.

Making use of these tools may greatly simplify the formation of an LLC and navigating California’s business climate.

The Bottom Line: Forming an LLC in California

Forming an LLC in California is a straightforward procedure that takes just a few steps to finish. To facilitate the paperwork process, the state provides a multitude of resources, such as comprehensive guidelines and model forms.  Examining leading companies for LLC formation might help expedite the procedure.