How to start a California LLC

An LLC is a type of business that helps protect its owners (called members). This means that if the business owes money or gets sued, the members’ personal assets, like their house or car, are usually safe. 

In the state of California, an LLC is defined as “a domestic entity formed under this title or an entity that becomes subject to this title pursuant to Article 13” (Corp C §17001.02(k)). That means an LLC in California is a company created within the state or a company that becomes subject to California’s state regulations surrounding LLCs (Title 2.6). 

If that sounds like a lot of legal jargon – that’s because it is! What you need to know is that LLCs are popular with business owners because they are simple and flexible to run. They have fewer rules compared to comportations and the owners can choose if they want to manage the business themselves or appoint managers to do it. 

Another benefit is how taxes work: LLC owners can pay taxes through their own personal tax returns, or they can choose to have the business pay taxes separately, like a corporation. This gives owners more choices in how they handle taxes as their business grows.

Why should I register for an LLC in California?

You may want to register for an LLC in California when:

• You own or want to start a business in California, or want to expand an existing business into California, and want to stay legally compliant. 
• You own or want to start a business, and want more flexibility on how you will manage the business or pay taxes than a corporation would provide.
• You want to protect your personal assets from potential liability resulting from business you conduct in the state of California. 
• You own or want to start a business, and want to register in California to open accounts, lease or buy property, secure funding, or hire employees.

Do I need to file my LLC in California if I live in another state?

Any LLC that does business in California must file with the State of California. California defines doing business as "entering into repeated and successive transactions of its business in this state" (California Corporations Code section 191). This means that if your LLC engages in any transaction in California for financial gain, it is considered to be doing business there.

LLCs based in California are called "domestic LLCs," and out-of-state LLCs are called "foreign LLCs." Foreign LLCs and domestic LLCs may have different filing and compliance requirements -- Rocket Lawyer can help you navigate foreign LLC registration, regardless of where you live.

How to start an LLC in California

1. Find a unique name for your California LLC

The state of California requires that the names of all LLCs in the state:

• Must have “LLC” or some derivation of it after your business name – “LLC”, “Limited Liability Company”, “L.L.C.”, or “Ltd. Liability Co.” are the most popular choices.
• Contain no words indicating the company is a bank, trust, insurer, government agency, or any other entity that is not allowed to be structured as an LLC (“incorporated” or “corporation”, for example).
• Are not too similar to existing LLCs in the state. You can search the state of California's database of business entities in the state to ensure your business' name is unique.

2. Include your other LLC members (if any)

In California, you can in fact form as a one-person LLC. You can also have other members of your LLC (employees or co-owners) that you don't have to include in your LLC filing, though down the road, you may want to think about completing an LLC Operating Agreement.

If you choose to include other members of your LLC in your state filing, they don’t need to be in California.

3. Provide a California address

This will be used as your official LLC address. The address that you list may either be your home, an office, or another physical location, but it cannot be a PO box.

4. Choose a Registered Agent

A Registered Agent is the person or business responsible for receiving tax, legal, and government documents during regular business hours. It's important that every business has one. You can either serve as your own registered agent (if you have a California address) or choose one to do that service for you (if you are not located in California or would like an extra layer of privacy).

5. Register your LLC with the state of California

Once you have a business name and registered agent, you can register your business as a California LLC with the California Secretary of State by filing your Articles of Organization. This document may be referred to informally as an LLC's "Articles," or in other states, it may be called a "Certificate of Organization," "Certificate of Filing," or "Certificate of Formation."

6. Get an Employer Identification Number (EIN)

California LLCs are required to have a Federal EIN tax number. Think of your tax ID as the social security number for your company. It will be important for business contracts, tax filings, and all manner of documents down the line. Every company should have one to remain in good standing.

7. Pay the state filing fee

Every state has different fees for forming an LLC, which can also vary from one year to another.

Congratulations! After you have completed all these steps, you have formed your California LLC.

What to do after forming a California LLC

There are a few steps you need to take to maintain your California LLC:

1. Create an Operating Agreement: we can help you create your California LLC Operating Agreement online.
2. File your Statement of Information: California requires that LLCs file a Statement of Information within 90 days of being formed, as well as every two years from then on. This form simply provides updated information about your LLC to the California Secretary of State's office on a regular basis.
3. Issue membership certificates to each of the owners: this certificate states that the individual owns part of the company and how much of the company they own.
4. Pay taxes according to how you chose to be taxed: traditionally, LLCs are "pass-through entities." This means that you pay your business taxes on your personal tax form. That said, you can elect to be taxed like a corporation, if you choose to do so.
5. Pay an annual Franchise Tax: this is required for all LLCs registered in the state, even if the LLC did not do business in California that year.

Although not required, you may also want to hold a meeting. A first meeting with members of an LLC is not required by law, but it is highly suggested in order to get organized. 

What is needed to keep records for my California LLC

The state of California requires the following information to be kept:

• A list of the names of all members or shareholders with a transferable interest, along with the last known address, contribution and profits and losses of each member.
• The full name and business or residence address of each manager.
• A copy of the company's Articles of Organization along with any amendments.
• A copy of the LLC's Operating Agreement and any amendments executed.
• A copy of the company's last six fiscal years' tax returns.
• Books and records pertaining to the company's current and past four fiscal years' operations.

Still have questions? Rocket Lawyer can help you with the process of forming a California LLC. Get started today!

  

Key takeaways Registering an LLC in California can give you a lot more flexibility than a corporation, as well as protection for your personal assets from potential liabilities. Even if you live in another state, you must register your LLC in California if you do regular business there, like selling things or having employees. After starting your LLC, you must file a "Statement of Information" within 90 days and then every 2 years. You’ll also need to pay a yearly Franchise Tax, even if your business didn’t make money that year. Keep records of your California LLC, like the names of all members, tax documents, and your business rules. These help you stay organized and follow the law.

Additional resources

Learning how to enforce a contract is just one step. Explore these additional topics to learn more and take the next steps.

• What is an LLC
• How are LLCs taxed
• How to start an LLC
• Do I Need a Registered Agent?
• How and when to file an Annual Report