How to Form an LLC in California: A Step-by-step Guide

If you’ve decided to start an LLC in California, congratulations! Whether you’re launching a new business or formalizing an existing one, setting up an LLC in California is an exciting venture. The process may seem overwhelming at first, but it’s fairly straightforward when broken down step-by-step. Proper LLC formation is crucial, so we’ll walk you through everything you need to know to get your California LLC up and running smoothly.

What is a Limited Liability Company (LLC)?

A Limited Liability Company (LLC) is one of the most common business types you can form in California. LLCs are favored by many small business owners because they can offer liability protection to the owners, or “members” for certain liabilities. LLCs also offer more flexibility when it comes to taxes. This is because LLCs are not recognized by the Internal Revenue Service (IRS) for federal tax purposes – it’s only a state designation, so LLCs can choose how to pay federal taxes. Your LLC must have the same classification for both California and federal tax purposes. Learn more about how LLC taxes work to see which federal tax classification is best for you.

How to file an LLC in California

Wondering how to start an LLC in California? The general LLC formation process in California is similar to other states, but comes with some specific requirements. Here are seven steps to take to get your business started in the Golden State.

Step 1: Choose your California LLC name

The first step to starting your LLC is to choose a name. If you already have a list of potential names, make sure they meet the following requirements:

• Your name should identify your business as an LLC, typically by including an abbreviation at the end of your name like, LLC, or L.L.C.
• Your name should be distinguishable and unique from other businesses
• Your name should not be misleading to the public

Before narrowing your list down to one, be sure to check the California trademark database and use the Secretary of State’s business search function to ensure that your name isn’t already registered.

California also offers a name reservation process so you can safeguard your perfect name for up to 60 days. All you need to do is complete the Name Reservation Request Form and file it along with a check for $10.

Step 2: Choose a registered agent

All states require that LLCs designate a registered agent. A registered agent is the person or business entity that is authorized to receive legal and tax documents on your LLC’s behalf. You can be your LLC’s registered agent, but this comes with administrative and compliance responsibilities. Many business owners choose to hire a registered agent service instead. When you form your LLC with Block Advisors, you’ll have the opportunity to appoint a third-party agent during the process.

California law requires LLCs to appoint a registered agent with a physical street address in the state and PO boxes aren’t allowed. The California registered agent’s name and address will be listed in public record and will be appointed in your Articles of Organization.

Step 3: File your LLC Articles of Organization

To formally request permission to start an LLC in California, you have to file Articles of Organization with the California Secretary of State. This is the main LLC formation document that establishes your LLC and must include the following:

• Your LLC name and address
• The names and addresses of all LLC members
• The name of your registered agent or registered agent service
• The purpose of your business

You have to pay a one-time filing fee of $70 in California to file your Articles of Organization which can be submitted online or filed by mail. If you want a certified copy of your registration, you’ll have to pay an additional $5. When forming your business with Block Advisors, we’ll create your California Articles of Organization based on information you provide and file them with the Secretary of State on your behalf.

Step 4: File your LLC Statement of Information

The California Secretary of State requires every domestic and foreign LLC in California to submit a Statement of Information, or Initial Report. The report must be filed within 90 days of forming your LLC and includes current information like member names, business address, business purpose, and registered agent name. You’ll have to pay a $20 filing fee and will have to complete a Statement of Information (along with the $20 fee) every two years. The California Secretary of State imposes a $250 penalty if you do not file your Statement of Information. The California Franchise Tax Board collects the penalty on behalf of the Secretary of State.

Step 5: Prepare your LLC operating agreement

Unlike other states, California requires your LLC to have an operating agreement. This is a key document for your business as it outlines your LLC’s financial, legal, and management responsibilities and rights of all LLC members. Your California operating agreement should include how profits will be divided and distributed, what happens if a member leaves, retires, or passes away, and who contributes to capital. This document ensures that all members agree on their rights and obligations and must adhere to the California Revised Uniform Limited Liability Company Act’s requirements.

Note: You don’t have to file this document with the Secretary of State, but it must be kept in your LLC records.

Step 6: Get an Employer Identification Number (EIN)

The next step is to obtain an Employer Identification Number, or EIN, as required by the State of California. An EIN, sometimes called a Federal Tax Identification Number, identifies your business to the government. It’s a unique code that the IRS assigns to your business that allows you to handle tax filing, open a business bank account, hire employees, and more. Even if your LLC is single member with no employees, obtaining an EIN is still beneficial. You can apply for an EIN online or by mail.

All Block Advisors Business Formation packages include EIN application preparation to help you easily check another thing off your list.

Step 7: Maintain your California LLC over time

Setting up your California LLC is just the start. Once your business is officially registered with the state, you’ll have to ensure that it remains in good standing. You have to fulfill federal, state, and local requirements like obtaining business licenses, filing annual reports, and paying filing fees to remain compliant. We’ll break down the tax requirements for California LLCs next.

California LLC tax requirements

Every LLC that is classified as a partnership in California must file Form 568, Limited Liability Company Return of Income, which is essentially a master form that shows your LLC’s income, taxes, withholdings, fees, and more. Additionally, all California LLCs must pay an $800 annual LLC tax to the California Franchise Tax Board (not the Secretary of State). You will be required to pay this $800 every year, regardless of total revenue or business activity. Your first payment is due on the 15th day of the fourth month after the date you established your LLC. The annual tax payment is due with LLC Tax Voucher (FTB 3522).

LLCs in California also have to pay an LLC fee, which is slightly more complicated. This fee is based on how much your business earns. When you establish your LLC you have to commit to submitting an estimate of your earnings by June 15 every year. You will pay the fee on this date, too. If you expect your LLC will earn more than $250,000 you will have to pay a fee. LLCs that don’t make the estimated payment by the due date may have to pay penalties and interest. Here’s a breakdown of the California LLC fee:

• For total income up to $249,999, the fee is $0
• For total income of $250,000 – $499,999, the fee is $900
• For total income of $500,000 – $999,999, the fee is $2,500
• For total income of $1,000,000 – $4,999,999, the fee is $6,000
• For total income of $5,000,000 or more, the fee is $11,790

LLC costs for filing in California

The CA LLC fee to register your business depends on a few factors, like if you choose to file by yourself or outsource the formation process. At the very least, your initial cost will be $90 ($70 for your Articles of Organization and $20 for your Statement of Information). The fees are paid to the California Secretary of State. If you’re hiring a registered agent service, be sure to budget for those annual costs. In the first year you register your business, you will need to pay the CA LLC fee (a one-time charge), your statement of information fee (due every two years), and any additional fees paid to the California Franchise Tax Board like the ones mentioned above (due annually).

Important considerations for California LLC owners

While there are many benefits to forming an LLC in California, there are also some laws and other considerations to be aware of. First, California’s annual tax and LLC fees make an LLC more expensive than a partnership or sole proprietorship. Choosing a business structure is not a decision to take lightly, so be sure to weigh your options to make the best choice for your business.

Lastly, California requires all businesses with one or more employees to purchase workers’ compensation insurance. This is the only business insurance required by California law, but it’s recommended to purchase additional forms of coverage as well based on your business needs.

California LLC FAQs

1. What are the penalties for not complying with California LLC rules?

Failure to comply with California LLC regulations may result in late fees, penalties and interest, or the suspension of your LLC’s operating status. Mark important dates for payments due in your calendar and make sure all records are accurate and organized to avoid potential mishaps.

2. Do I need a state tax identification number?

No, California does not require a state tax identification number.

3. Can you dissolve a California LLC?

Yes. To dissolve an LLC in California you will need to file paperwork with the Secretary of State including a Certificate of Cancellation and a Certificate of Dissolution.

4. Which tax structure should I choose for my California LLC?

The choice of tax structure you choose depends on your specific business needs. By default, single-member LLCs are taxed as a sole proprietorship and multi-member LLCs are taxed as a partnership, but you can elect an S- or C-corp status instead. Talk with a tax professional to determine which tax classification is best for you.

5. How long does it take to start an LLC in California?

Once you have all of your documents prepared and a name chosen, the processing time for LLC forms in California is usually about eight days. Use the Secretary of State’s Business Entity Processing Dates tool to check the current processing time of your documents. And, you can get started forming an LLC with Block Advisors in just 10 minutes.

6. Can I form an LLC in California if I’m not a resident?

Yes, non-residents can form and operate an LLC in California. You must, however, appoint a registered agent who is a California resident.

7. What taxes will my LLC be subject to?

All California LLCs are subject to the $800 annual LLC tax. Other taxes your LLC may be responsible for include gross receipts tax, income tax, self-employment tax, sales and use tax, and local tax.

Form your LLC (California) with Block Advisors

Starting an LLC in California doesn’t have to be a headache. If you’re feeling overwhelmed by the formation process, don’t worry. Block Advisors has the tools to help you form your LLC quickly and confidently. Get back to doing what you love while we work with the State of California to file your LLC paperwork with 100% satisfaction, guaranteed.

Speak with a certified small business pro today to start forming your Limited Liability Company.

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This article is for informational purposes only. The content may not constitute the most up-to-date information and should not be construed as legal advice.