How to Start an LLC in California in 7 Easy Steps

12/08/2023 04:39 PM

Filling out LLC California Secretary of State forms is only one part of how to form an LLC in California.

If you’re wondering how to start an LLC in California, you’re not alone. California’s economy ranks fifth in the world — its $3.1 trillion economy falling between that of Germany and the U.K. Aspiring business owners and entrepreneurs continue their California dreaming because there are few places in the U.S. better suited to launch any kind of company under the sun.

Step-by-Step LLC Formation

Forming an LLC comes down to following a few easy steps, outlined below.

Step 1: Evaluate Your Business Structure Options

If you’re wondering “how fast can I form an LLC in California?” it might be time to set grounded expectations. Navigating the process of how to start an LLC in California requires a little forethought and some planning, but it doesn’t have to be difficult.

Launching a business is a consequential act and requires some reflection so that you don’t suffer the consequences of rushed decision-making down the road. For example, if you don’t weigh the pros and cons of choosing an alternative business structure (such as an LLC vs. S-Corp), you may end up selecting the wrong type of business for your entrepreneurial vision.

There are four different business structures that you can choose from when launching a new company. Each option has distinct benefits and drawbacks. As a result, the same structure that has worked well for a competitor may not be the best option for you. After reviewing the basics of each, it can help to speak with an attorney about how the ins and outs of each formation option could affect your business vision practically, legally and financially.

Corporations

If you want to take advantage of various fundraising options as you get ready to open your doors, you hope to expand your business quickly, and you have no issue with sharing the management of your company you might want to form a corporation. Corporations are owned by shareholders, and the rigid management hierarchy of these entities is bound to serve the interests of those shareholders.

It isn’t easy to form a corporation or to maintain one, as they must comply with rigorous reporting requirements. However, corporate structure provides the highest level of personal liability protection for shareholders and aren’t taxed on personal returns. Instead, corporations are both taxed and held liable for debts and legal judgments as distinct entities. If you want to remain insulated from the risk of being held personally accountable for the actions and financial evolution of your company to the greatest possible extent, forming a corporation may be the right choice for you.

Sole Proprietorships and Partnerships

On the other end of the structural spectrum are the very flexible and highly personal enterprises founded as sole proprietorships and partnerships. Each of these options is taxed via the personal returns of their owners, and neither option insulates owners from personal liability if the business goes bankrupt, is sued or is held liable for a debt.

Such significant risks are associated with these options that you may be wondering why anyone would choose to form their companies in this way. There are some great upsides:

Sole proprietorships (owned by a single person) and partnerships (owned by multiple parties) aren’t generally required to register with the state
No annual reporting requirements
Flexible management structure
The most freedom of ownership to operate without state-imposed restrictions.

Limited Liability Companies

Limited liability companies represent the best of both worlds, and it might be in your best interest to learn how to start an LLC in California. Like sole proprietorships and partnerships, they benefit from flexible management options and aren’t subject to many state-regulated restrictions. While there are several steps involved in forming a California LLC and these companies do have to submit annual reports and annual taxes to the state, they aren’t scrutinized in the ways that corporations are.

Most importantly, LLCs allow owners (called members) to benefit from personal liability protection even though the company isn’t structured to cater to shareholders. This means that you can run your business without a board of directors. In addition, your personal property and assets won’t be vulnerable to seizure in the event that your company gets into financial trouble. These business structure benefits are some of the reasons why so many single-member and multi-member LLCs operate all across California.

Step 2: Commit to a Formal Company Name

Once you feel more comfortable knowing how to form an LLC in California, it’s time to pick a company name. When filling out your online LLC application, you’ll be asked to state the formal name of your new business.

A company’s legal name isn’t always the same as its trade name. A trade name is a “doing business as” (DBA) moniker, whereas a company’s legal business name is its formal title filed with the state. For example, “The Coca-Cola Company” is a legal business name, but the company also does business under the trade names of “Coca-Cola” and “Coke.”

Consider Legal Names and Trade Names

California law requires LLCs to adhere to specific naming restrictions when assuming a formal title. For example, your formal LLC name will need to have one of the following phrases or abbreviations attached to it: Limited liability company, LLC or L.L.C. You may also shorten the word “Company” to “Co.” or the word “Limited” to “Ltd.” If you don’t want to include the LLC designations in your branding, you can register a trade name.

Search for Name Availability

To make sure that your preferred formal and trade names are available for use in California, search for each of them and make sure they’re distinguishable from other names already in use. You can temporarily reserve your name(s) of choice in California for up to 60 days. You’ll need to do a search on the U.S. Patent and Trademark Office website for any national trademark conflicts that could compromise your intellectual property rights.

Step 3: Designate a Registered Agent

Figuring out who to designate as your registered agent is part of knowing how to form an LLC in California. Registered agents accept paperwork from the government and are filed in the courts on behalf of the LLCs they act on behalf of.

In California, an LLC can’t act as its own registered agent. But, a member or employee of an LLC can be named as the company’s registered agent as long as they maintain a street address in the Golden State and are over the age of 17. Any natural person who meets these residency and age criteria can serve as a California LLC registered agent.

Inside Scoop: You can designate a California registered agent service to serve as your LLC’s agent for service of process. This is an especially convenient option because California registered agents are required to be generally available during business hours in case any legal or governmental documents need to be delivered. Tasking an agency with receiving paperwork can free you and others from the worry that if you’re out of the office, you could miss the delivery of important documents.

Step 4: File LLC Articles of Organization

The state will remain unaware of your LLC’s existence until you file your LLC’s California articles of organization. After you’ve submitted this LLC California Secretary of State form, the state will authorize your LLC to conduct business. To successfully complete this step, have the following information ready:

The formal name of your LLC
The name and address of your registered agent
Confirmation of whether you’re establishing a single-member or multi-member LLC
Your LLC’s business address

You, another LLC member, or an attorney authorized to sign on your behalf will need to provide a signature and printed name as the Organizer of your LLC articles of organization. You’ll also need to submit a filing fee.

Step 5: Request a Federal Employer Identification Numbers

When learning how to start an LLC in California, you’ll need to tackle each step in the right order or you’ll get stuck. For example, you won’t be able to open a business bank account, secure credit or begin hiring employees until you receive your LLC’s federal employment identification number.

Like a Social Security number issued to an individual, your EIN will allow the federal government, the state of California, creditors and other interested parties to verify your LLC’s business identity. Applying for this important number doesn’t take long, is free and is a process that can be completed online.

Step 6: Draft an LLC Operating Agreement

Most states treat the process of drafting an operating agreement as optional. In California, this process is required for LLCs. You’ll need to complete this step of the process regardless of whether you’re forming a single-member LLC or a multi-member LLC.

If you’re forming a multi-member LLC, this agreement will set legally-enforceable expectations for how you and your fellow LLC members will run the company. If you’re forming a single-member LLC, this process will formalize some of the foundational choices you’re making with respect to your LLC’s operations. Matters that may be addressed in your LLC operating agreement include:

Whether your LLC will be taxed personally or as a corporation
The ownership division breakdown of LLC members
Voting rights, responsibilities, restrictions and powers afforded to members, investors and managers
Distribution procedures
How and when the LLC can be dissolved

Step 7: Finish What You’ve Started

You’ve taken all of the basic steps required to start an LLC in California. But, you have work to do before you can open your doors. Here are a few of the next steps you’ll want to consider as you get your LLC ready to launch:

Secure a URL associated with your company name
Apply for a business credit card and open an LLC bank account (Have your EIN number ready!)
Learn about California workers’ compensation obligations for employers
Sign up for an online accounting service or hire an accountant to accurately maintain your business records
Purchase business insurance
Obtain all permits, licenses and permissions required by the state, local government and your industry so that you can begin your life as a business owner in compliance with the law

How to Start an LLC in California FAQ

When does an annual California LLC report need to be submitted to the state?

Many states require LLCs to submit reports by a specific date that applies to every business operation within their jurisdiction. California’s approach is different. Every two years, you’ll need to abide by a six-month reporting window, determined by the date you file your first LLC Statement of Information report, also known as a form LLC 12 (within 90 days of forming your business).

Say, for example, that your first report was submitted in March. Moving forward, you’ll be required to submit your annual report in the filing window commencing in October and ending in March.

Does my company need a business license to start an LLC in California?

Some LLCs need to secure licenses before they can become operational and others don’t. The Governor’s Office of Business and Economic Development provides a search tool for public use that allows aspiring business owners to see if they need licenses or permits before they can open their doors. Your company may need a license or permit because of the type of company you’re launching or because of where your LLC will open for business.

Inside Scoop: While the state doesn’t require LLCs to obtain a general business license, some cities and counties insist that business owners make this effort.

Can I form a professional LLC in California?

Unlike many other states, California doesn’t recognize a professional LLC (PLLC) as a business structure option. If you plan to provide professional services once your business is operational, you can either navigate the steps above detailing how to start an LLC in California, or you can look into forming a limited liability partnership (LLP). Legal, architectural and accountant firms are permitted to operate as LLPs in California.

Regardless of which option you choose, make sure to detail all consequential issues related to how your company will be run in an operating agreement. Also, make sure that you secure any specialty licenses or permits that may apply uniquely to businesses in your industry.

Now That You Know How to Start an LLC in California, It’s Time to Do It!

Although the process of registering a California LLC isn’t overly complex, these steps can be a lot to keep track of. Using the best LLC service can streamline the file an LLC online in California process and allow you to work each step efficiently.

Legal Disclaimer: This article contains general legal information but does not constitute professional legal advice for your particular situation and should not be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed in your jurisdiction.