How To Start an LLC In California

In California, an LLC is one of the most preferred business structures because it offers several unique perks and protections. It’s key benefits include limited liabilities and ‘pass-through’ taxation which help protect members’ personal assets while aiding efficient business operations. 

The provisions for the formation and operation of an LLC in California are outlined in the Corporations Code; specifically the California Revised Uniform Limited Liability Company Act (RULLCA). Per =Title 2.6, Section 17701.01, the process of forming an LLC in California can be summarized in 5 steps:

California’s Secretary of State is tasked with overseeing the process of LLC filing and registration in the state. With over 4 million businesses under its purview, the office processes thousands of LLC formation queries each year. Its Business Programs Division also maintains records related to LLCs.  Using the California Business Search tool, individuals can access free PDF copies of over 17 million imaged business entity documents (including LLC files) from the SOS website.

What Is an LLC?

A limited liability company (LLC) is a business entity comprising one or more members owning a certain company share. In California, an LLC blends partnership and corporate structures. An LLC can be formed to run a business or to hold assets. The owners of an LLC are called members and are protected against personal liabilities. An LLC with only one member is considered a disregarded entity and referred to as a single-member limited liability company (SMLLC). However, an LLC with more than one owner is a partnership. It is referred to as a limited liability partnership, limited liability limited partnership, or series limited liability company. Lastly, an LLC can also be taxed as a corporation. 

California Revised Uniform Limited Liability Company Act authorizes the formation of LLCs in the state. The Act permits foreign LLCs to do business in California. Only California residents doing business in the state and registered with the SOS are eligible to form LLCs. In contrast, foreign and non-registered businesses can only be eligible to form LLCs in California if they are treated as a partnership, have California source income, and do not do business in California. Per Section 17701.08 of the LLC Act, the name of a limited liability company must have the words “limited liability company” or abbreviations such as “LLC” or “L.L.C.” The word “Limited” and “company” can be abbreviated as “Ltd.” and “Co.” respectively. The business name should not contain words like corporation, trustee, inc., bank, corp., incorporated, trust, or any words suggesting that the LLC issues insurance policies (like insurer or insurance company).

Before filing an LLC application, applicants are advised to perform a California LLC name search. This is to ensure that their selected name is unique and compliant with California’s LLC naming requirements.

California’s naming requirements are as follows:

To perform a California LLC name search, use the Business Search feature of the California Secretary of State’s website. In addition to the name search, inquirers may search the United States Patent and Trademark Office (USPTO) website to ensure the desired name doesn’t infringe on any registered trademarks. 

If the name is available and compliant with the state’s requirements, the applicant can opt to reserve it for up to 60 days by filing a “Name Reservation Request” form with the California Secretary of State

Step 2: Choosing an LLC Registered Agent in California

Section 17701.13 of the California Corporations Code requires all LLCs to designate and maintain a registered agent in the state. Also known as an agent for service of process, a registered agent receives legal documents and notices on behalf of it’s LLC.

An LLC registered agent in California should:

To find a company’s registered agent in California, inquirers can search the California Secretary of State’s business search database. After entering the company name or entity number, inquirers will be furnished with information about the company, including the name and address of its registered agent.

How Do I Change My Registered Agent for My LLC in California?

To change a registered agent in California, business owners may file an updated Statement of Information with the California Secretary of State. The required form, LLC-12, must be completed with the new agent’s information and address, as well as the LLC name and entity number. The form, along with the applicable filing fee may be submitted in person, online or via mail to:

California Secretary of State

Business Entities

P.O. Box 944228

Sacramento, CA 94244-2280

Step 3: LLC Filing Requirements in California

To file for or form an LLC, the company must meet one or all of the following requirements:

If the LLC is foreign and non-registered, it must meet all of the following:

Then the LLC can file a Partnership Return of Income (Form 565). Review the 2022 Partnership Tax Booklet for additional information.

LLC Articles of Organization in California

California Articles of Organization (Form LLC-1) is a legal document required to establish an LLC in California. It is typically filed with the Secretary of State and they provide basic information about the LLC, its purpose, management structure and registered agent. In addition to the aforementioned, the form must specify the organizer of the LLC and whether the LLC will be managed by owners or appointed managers.

LLC Operating Agreement in California

A California LLC Operating Agreement outlines the operating procedures for an LLC in the state. It features details regarding the LLC’s management and ownership structure, establishes profit-sharing and loss allocations and outlines the process for adding or removing members. While not required by California state law, an LLC operating agreement is recommended to ensure a clear understanding of the LLC’s operations among its members.

California LLC Statement of Information

An LLC statement of information is an Annual Report or Biennial statement that serves to update the state with the latest information about an LLC. It aids the government in effectively regulating businesses and maintaining public records for taxation and legal compliance.

Do You Need a California Address for LLC?

Yes, California LLCs are typically required to have a principal office address within the state. This address must be listed on the Articles of Organization filed with the Secretary of State. However, where the business does not have a physical location, there are services that can provide a California address for the LLC. These services typically include a registered agent service and a virtual office or mailbox service that can provide an address for the LLC’s legal requirements. 

How To Get a Virtual Address for LLC in California

There are several considerations to evaluate when choosing a virtual address for LLC in California. Some virtual address providers often include mail handling services such as mail forwarding, scanning, and package reception. Some also offer meeting room rentals, phone answering services, and coworking spaces that can be a cost effective solution for selected businesses. 

After researching virtual mailbox providers, the LLC owner may compare plans and pricing and then sign up for the most suitable plan. It is worth noting that each LLC must have a registered agent with a physical street address in the state, and a virtual address cannot be used for this purpose. However, a virtual address can be used as a replacement for a principal office address.

Step 4: How To File for an LLC in California

Individuals can file for an LLC by mail, or in person at the California Secretary of State (SOS) office. 

Mail filers must complete the Articles of Organization – LLC-1 form and Statement of Information (Form LLC-12) and send them to the SOS office. No processing fee is required, but individuals requesting a certified copy of the document must pay $5. Fees should be paid via checks or money orders. All mail should be addressed as follows:  

California Secretary of State

Document Filing Support

Po Box 944228

Sacramento CA 94244-2280

In-person submissions should be made during SOS business hours. Filers are required to pay $15 for the handling fee. They would be giving the  LLC-1 form to fill out at the office. The SOS office is located at:

California Secretary Of State

1500 11th Street

Sacramento CA 95814

Note that every California and registered foreign LLC must file a Statement of Information with the SOS within 90 days of formation and every 2 years after that during a specific 6-month filing period based on the formation date. In addition to filing the Articles of Incorporation and Statement of Information forms, an LLC must have operating agreements among its members. The operating agreement is not filed with the SOS but is filed at the office where the LLC’s records are kept.

How To Create an LLC Online in California

To form an LLC online in California applicants may:

In addition to filing the Articles of Incorporation, online applicants are required to file a Statement of Information form. To do this:

Can You Have Multiple Businesses Under One LLC?

Yes. The California Business and Professions Code allows any entity including an LLC to register fictitious business names (DBAs) and conduct business under multiple names without forming separate legal entities for each business. However, depending on the nature of the business, separate business licenses and permits may be required for each one. In addition, it is important to maintain separate financial records for each business, and consider the liability implications of this arrangement since the entire LLC and all its assets is at risk following a debt or lawsuit.

How Long Does It Take To Set Up an LLC in California?

In California, the processing time for an LLC varies with the method of application. For online filing through the California Secretary of State’s Business Portal, the processing time is 1-2 business days. In-mail queries are processed between 5-15 business days, but in-person or over-the-counter filings may be as quick as the same day or up to a few business days. However, these timeframes are subject to change. 

Step 5: How To Get an EIN for LLC in California

To get an EIN for LLC in California, applicants may query the IRS online or via mail. 

For online applications, using the IRS EIN Assistant to submit the required information. Once the applicant is complete, the EIN will be processed and issued immediately. 

To get an EIN via mail or fax, download and complete the Form SS-4 and submit to:

Internal Revenue Service

Attn:  EIN Operation

Cincinnati, OH 45999

Fax: 855-641-6935

For persons with no legal residence, place of business, or principal office in the U.S submissions may be made to:

Internal Revenue Service

Attn:  EIN International Operation

Cincinnati, OH  45999

Fax: 855-215-1627 (within the U.S.)

Fax: 304-707-9471 (outside the U.S.)

Step 6: Do LLCs Pay Taxes in California?

Yes, LLCs pay taxes in California. They are subject to two types of taxes; the annual LLC tax and the annual LLC fee. However, tax laws and regulations are frequently modified so inquirers may consult the California Franchise Tax Board (FTB) for the most up to date information on the tax expectations of their organization.

How Are LLCs Taxed in California?

The Franchise Tax Board (FTB) requires all LLCs conducting business in California to pay their first-year annual taxes every 15th day of the 4th month from the formation date. Subsequent annual tax payments must be made on the 15th day of the 4th month of the taxable year.

Annual taxes are a minimum of $800, and are also referred to as the “Franchise Tax.” This tax is due even if the LLC has no business activity or does not generate any income.

In addition to the annual LLC tax, California imposes an annual fee based on the LLC’s total income derived from, or attributable to, California sources. This fee is called the “Annual LLC Fee” and applies to LLCs that generate a certain amount of income in California. The fee structure is as follows:

California LLCs can be taxed differently depending on how they are structured. Single-member LLCs are usually treated as sole proprietorships for tax purposes, while multi-member LLCs are treated as partnerships. LLCs can also elect to be taxed as corporations. Each taxation structure has different implications for taxes and filing requirements.

Tax Benefits of An LLC in California

There are several tax benefits accrued to LLC organizations in California, they include:

Maintaining Compliance With Annual Filing Requirements in California

After formation, LLCs will be required to maintaining several ongoing requirements including:

Do You Have To Renew LLC Every Year in California?

No. California business owners do not have to renew LLC yearly. An LLC does not have an expiration date or predetermined lifespan as long as it remains in good standing with the state. To maintain their active status, business owners must:

Failure to meet these requirements, may result in penalties and ultimately lead to the suspension or dissolution of the LLC.

How Much Does It Cost To Start an LLC in California

California law requires individuals whose LLC income exceeds $250,000 to pay a fee. All fees must be paid by the 15th day of the 6th month of the current tax year. Individuals who refuse to pay the required fees by the original return due date will be subject to penalties and interest. Use the form FTB 3536 to remit the estimated fee payment. Below is the fee expected from LLCs based on their income: 

LLCs classified as partnerships or disregarded entities are subject to an $800 annual tax. This applies to LLCs operating in California or those that have submitted their Articles of Organization (LLC-1) or Application for Registration as a Foreign Limited Liability Company (LLC-5). LLCs registered in California are required to pay the annual tax even if they are not actively conducting business interactions in California (R&TC Section 17941(b)(1)). However, Assembly Bill 85 provides a first-year annual tax exemption for LLCs registering with the SOS between January 1, 2021, and December 31, 2023. LLCs not conducting any business in California during the taxable year and with 15 days or less taxable year (R&TC 17946) are not subject to the annual tax. Individuals must file and pay the annual tax by the 15th day of the 4th month of the LLC’s tax year. All payments alongside the completed FTB 3522 form should be sent to:

Franchise Tax Board

Po Box 942857

Sacramento CA 94257-0631

Can You Form an LLC for Free in California?

No. However, while it is not possible to form an LLC for free in California, applicants can minimize cost by handling part of the creation process. 

How To Start an LLC in California at Minimal Cost

Generally, LLCs are expected to pay a filing fee, a total income fee, and an $800 annual tax. However, the $70 online filing fee has been waived for applications submitted between July 1, 2022, and June 30, 2023. Also, mail applicants do not need to pay any filing fee except they request certified copies of their registration, which costs $5. LLCs can complete the filing process for less by submitting applications in person at the SOS. Only a $15 handling fee is required. 

LLCs with income up to $250,000 are not required to pay any LLC fees. There is also a first-year annual tax exemption for LLCs that register with the SOS between January 1, 2021, and December 31, 2023. LLCs not conducting business in California during the taxable year and their taxable year is up to or less than 15 days ( R&TC 17946) are exempted from annual tax.. 

What Businesses Should Consider Forming an LLC in California?

LLCs are especially suitable for small and medium-sized businesses, as they provide a simpler structure and lower administrative requirements compared to corporations. For businesses with multiple owners, an LLC also allows for flexible ownership and management structures. Ultimately, an LLC can be formed by almost any type of business, as long as it is legal and operates within the regulations of the state where it is being formed..

What Are the Benefits of an LLC in California

The benefits of forming an LLC in California are as follows:

How Does an LLC Work in California?

LLCs protect their members from personal liabilities. They operate as a combination of partnership and corporate business structures. LLC members enjoy similar advantages of limited liability as corporation shareholders while paying taxes as individual members, like partners in a partnership.

An LLC can operate as a one-member company or a multiple-member company. This distinguishes LLCs from other business structures, which operate strictly as either owned by one man (sole proprietorship) or multiple individuals (corporation and partnership). 

The best way to keep an LLC active is to file the Statement of Information with the SOS during the filing period and file and pay the necessary income taxes. Refusal to file a Statement of Information attracts a $250 penalty. Individuals who want to close their LLCs must file their final current year tax returns with the Secretary of State and Franchise Tax Board (FTB). They must also stop doing business in California after the final taxable year. Review the FTB Publication 1038 for more information. 

LLC VS S Corp in California 

An LLC is a business entity that protects the personal assets of its owners. Conversely, an S Corporation (S Corp) is a structure that allows income and losses to flow through to the shareholders. These income and losses are usually reported on the shareholders’ personal tax returns.  The major difference between LLC and S corp is the annual tax. For S Corp, the annual tax is 1.5% of the corporation’s net income or $800 (whichever is greater). In contrast, the LLC annual tax fee is set at $800.  

There are no limitations on the number of members an LLC can have. These members can vary by type (individuals, corporations, or other LLCs and foreign entities). Conversely, S Corps are limited by the types of owners (shareholders) and cannot be more than 100 shareholders.

An active LLC member may be required to pay a 15.3% self-employment tax on the distributive share of LLC income. Meanwhile, S Corp shareholders only pay payroll tax on the wages received from the corporation as its shareholder/employee. This provides tax savings to shareholders for self-employment tax purposes.

Per California Corporation Tax Law, an LLC can be treated as an S Corporation if they classify as an association and taxable as a corporation for federal purposes. However, they must file Form 100S (California S Corporation Franchise or Income Tax Return). 

LLC VS Sole Proprietorship in California 

A sole proprietorship is an unincorporated business owned and controlled by an individual. There is usually no distinction between the owner and the business. Conversely, an LLC is a business entity with one or more owners (members). The business exists independently of its members. 

Since there is no legal separation between a sole proprietorship and its owner, the owner gets all the business’ profits and bears all losses and debts. On the other hand, LLC members enjoy limited liability, which protects them from being held personally liable for the company’s financial obligations. 

Starting an LLC is more complex than creating a sole proprietorship. LLCs must register with the California Secretary of State (SOS), draft and submit the Articles of Organization, and pay a filing fee. A sole proprietorship does not require filing documents with the SOS. A sole proprietorship is limited to one person, so bringing another person into the business can cause it to end. However, LLCs have no limitation on membership. 

LLC VS Corporation in California

A C-corporation is an entity that is owned by its shareholders (owners) but exists separately from its owners. An LLC is a business entity that blends partnership and corporate structures. An LLC can be owned by one member (Single-member limited liability company (SMLLC)) or more than one member (partnership). Conversely, the ownership of a C-corporation is divided among shareholders, directors, and officers who perform diverse roles. 

The formation process of LLCs and C-corporation involves filling out different forms. LLCs are required to file an Articles of Organization form, while C-corporations file Articles of Incorporation forms. After filing the appropriate paperwork, a C-corporation is required to take further formation steps that are not required for LLCs. For example, they will need to create bylaws that cover director meetings, stockholder meetings, and a number of officials and their responsibilities. 

Business License Vs. LLC in California

In California, a business license and an LCC are two different concepts. A business license is a permit allowing individuals to do business within the state. However, an LLC is just a business structure formed by filing the appropriate paperwork with the California Secretary of State and paying the required filing fees. Most LLCs operating in California must obtain business licenses from the appropriate government agencies. 

Do I Need a Business License if I Have an LLC in California?

Yes, most LLCs are required to have business licenses. Depending on the business type, LLCs can obtain business licenses from the California Department of Industrial Relations (DIR) or the California Department of Tax and Fee Administration (CDTFA). Per Section 17701.04(e) of the California Corporations Code, domestic and foreign LLCs are not permitted to render professional services (Section 13401 and Section 13401.3). However, a public opinion issued by the California Attorney General in 2004 states that businesses can conduct activities as LLCs only if their services require non-professional occupational licenses. 

How To Dissolve an LLC in California 

To dissolve an LLC in California, business owners must consult their LLCs operating agreement for any provisions outlining the process for dissolution. Subsequently, the LLC members may hold a meeting to vote on the LLC dissolution and document the final vote decided. After the vote, file a certificate of dissolution with the California Secretary of State along with the form LLC-3 and a certificate of cancellation (Form LLC-4/7). After the filing, notify the FTB of the LLC’s dissolution by submitting a final tax return (Form 568), indicating it is the final return.