How to Start an LLC in California: The Step by Step Guide
Here is a step-by-step roadmap to creating an LLC in California, including choosing a name, filing the articles of organization, getting a copy of your registration, business formation tips, franchise tax filing, and making an S-Corp election.
How to Start an LLC in California: The Step-by-Step Guide
Here is the step-by-step roadmap to creating an LLC in California, including choosing a name, filing the articles of organization, getting a copy of your registration, business formation tips, franchise tax filing, and making an S-Corp election.
Do I need to set up an LLC?
If you aren’t sure if an LLC is the best entity type for you, read more about business entity types.
Should you set up your LLC in California?
Before setting up an LLC, we recommend consulting a business attorney. An LLC is a legal entity in the state where you file, and it doesn’t change your tax status with the IRS. LLC's can be taxed as sole proprietors, partnerships, or S-corporations.
In general, you will create an LLC in the state where you live. However, if you conduct business out-of-state, you may need to file a foreign LLC in that state in addition to your home state.
You can’t avoid the annual California Franchise Tax fee simply by filing your LLC in another state, even if you run your business online. If you are doing business in California, you’ll need to register with the Secretary of State.
Step 1: Choose a Name
You need to find out if the business name you wish to use is both legal and available. First read about California’s Business Naming Guidelines. Some of the requirements include:
- Your name must be substantially different from existing businesses. If the name is too similar to an existing LLC, you will have to choose something else, or get permission from the other business owner. It’s best to choose a name that is both unique and not misleading (it clearly describes or relates the type of work that you perform).
- The name must indicate that you are an LLC (such as LLC, L.L.C, etc.), but you can also register a DBA with your county clerk (aka “Fictitious Business Name”) to operate with a different name (on your website and business cards for example). This step is optional but must be completed within 40 days of filing your LLC.
Then you need to choose a name. Use the Business Search to see if the name you’d like is available. You must search exactly as you want your name to appear on the filing.
Once you find a name, you’ll want to purchase your website domain, if you haven’t done so already to ensure that no one else can claim it.
Step 2: Complete the Articles of Organization (Form LLC-1)
First, visit the California Secretary of State website, and click on LLC Formation to start the online filing process. (If you prefer to file by mail, see the instructions.) The filing fee is $70.00, with a $5.00 fee for the certified copy. Note that you will also owe the Franchise Tax Board a minimum tax of $800 per year to operate your LLC in California in addition to the filing fee, but this is paid when you file your tax return and not when you form the company. You may owe more than $800 depending on your business income. Consult a tax professional for more guidance on your potential liability.
Next, you’ll need to appoint a registered agent, which is a business or person who accepts legal and tax correspondence on your behalf. If you are a California resident, you can use your own physical address, a friend’s address (if they agree to it), or you can purchase registered agent services to keep your address private. A PO Box is not sufficient.
As you follow the online prompts, you will encounter the following items:
- Designated Office in California: this is the California physical address for your business. You can use your office address, a home address, or registered agent address, but not a P.O.box. This is where copies of your official documents and business records must be kept.
- Initial Mailing Address: This is for mailing purposes and can be the same or different from your designated office. You can use a P.O Box or virtual mailbox here.
- Service of Process: This is where you enter your registered agent information. You will select individual OR registered corporate agent. If you purchase registered agent services, they will give you instructions on which Corporate Agent name and address to enter.
- Management Structure: LLC owners are called “members.” You can also appoint someone to manage the LLC, but they aren’t necessarily a “member.” Every LLC must have at least one member or owner, and if no managers are appointed, then all members are automatically managers too. Don’t overthink this one. If you are a single-member LLC, and plan to manage your own business, select “One Manager.”
- Organizer Electronic Signature: Enter your individual name (not your registered agent). If an attorney is filing this for you, they would sign on your behalf.
- File Date – you can select today’s date, or a future date less than 90 days from today.
- Review Submission and Make Payment: Choose Filing + Certified Copy for $75.00. Enter your billing and contact information and submit.
Step 3: Confirmation and Status Check
Once you submit payment, you will receive a submission receipt to your registered e-mail address, but it will take about 3 business days to receive a copy of the certified LLC receipt (if you paid for that option). If there are any errors or corrections needed, the secretary of state office will contact you. You can check the submission status of your filing using this link.
Step 4: Statement of Information (Form LLC-12)
Don’t forget this step!
All LLCs in California must submit a Statement of Information within 90 days of registering, and every 2 years after that. You can file online here.The filing fee is $20.00, and you will be required to report business addresses, manager and member information, registered agent, and type of business.
Every two years after that, you’ll new to renew your statement of information using the same link. Failure to file this on time can result in penalties, typically $250 for businesses.
Step 5: Complete Other Business Formation Tasks
Depending on a number of factors, you may also need to complete some or all following business formation tasks:
- Apply for an EIN with the IRS
- Open a business bank account in the name of your LLC. Be sure to keep your business and personal income and expenses separate.
- Register a DBA or Fictitious Business name with your county clerk
- Obtain all required business and occupational permits
- If necessary, register your business to collect and pay California Sales Taxes
- If you plan to hire employees, there are a number of forms to file, visit the EDD for more information. Your accountant or payroll software can assist you with this process.
- Set up your bookkeeping software
- Apply for a merchant services account to accept payments
- Pay your quarterly estimated taxes to both the IRS and CA (and any other states where you earn income) 4 times each year
- File your annual income tax return
- Schedule a Free Consultation with a CPA
Step 6: Pay the Annual Franchise Tax
You become an active business the date your filing is accepted by the SOS (or the future date you selected when registering). At this point, you will be required to pay the minimum annual franchise tax of $800 with the Franchise Tax Board. These taxes are typically due April 15th, and many business owners file these in conjunction with their tax return.
Step 7: Become an S-Corporation with the IRS
As a single member LLC, your income is taxed as a sole proprietor. If you have more than one member in your LLC, you’ll file a 1065 partnership return, which is taxed similarly to a sole proprietorship.
At a certain point, it will make more sense for you to elect to become an S-Corporation with the IRS. Some say that you must first make $100,000 before it makes sense, however, it depends on your unique industry and circumstances. You may be able to save on taxes with only $50,000 in profit, so we recommend booking a free consultation with a CPA to run a scenario analysis.
Need Help Filing your California LLC?
If you have questions when filing your California LLC, please book a free consultation.