California LLC FormationIf you’re looking for a reliable DIY guide for starting an LLC in California, look no further.

Below you’ll find all the information you need to launch your business and handle any associated costs.

Follow each step carefully and your LLC will be established and ready to hit the ground running. We’ve also included helpful resources along the way.

Step 1: Name Your LLC

What’s in a name? Quite a bit, actually. Your business name is your California LLC’s identity, its personality, its reputation. Find a name that sticks in customers’ minds – while conveying your brand qualities – and you’ve struck gold. A unique, memorable name can draw in new customers and keep existing ones coming back.

Your LLC name is going to appear everywhere: business cards, marketing collateral, websites, legal contracts, bank accounts, invoices, directories, and much more. So be sure that it conveys your product, service, brand, and values.

While you can (and should) be creative with your business name, there are certain state requirements that it must follow.

Any name you choose must end with the words “Limited Liability Company,” or the abbreviations “L.L.C.” or “LLC,” and it must avoid the terms “bank,” “trust,” “trustee,” “incorporated,” “inc.,” “corporation,” “corp.,” “insurer,” “insurance company,” or any other words that might imply that it’s an insurance or banking company. Moreover, your name must not be misleading as to the LLC’s business purpose.

Of course, you can follow all of these rules carefully, but if your name is already taken, it won’t be available. So, you should first determine whether or not your name is distinguishable from all others on record with the California Secretary of State.

If your name is unavailable, you may want to find a way to distinguish it without discarding it completely. As you do, keep in mind that making changes to the following components will NOT be enough:

  • Capitalization, superscript, subscript, or an ampersand (&) interchanged with “and”
  • Business type identifiers like “LLC,” “Ltd.,” “Inc.,” or “Corp.”
  • Singular, plural, or possessive forms of the same word
  • Articles (“a,” “an,” and “the”) and conjunctions (like “and,” “but,” and “or”)
  • Punctuation and symbols
  • The expression of numbers as Arabic numerals, Roman numerals, or words

To use a name that’s “substantially similar” to another, you will need to obtain consent first. For more information, check out the California Code’s Business Entity Names section.

For Example

Consider this: your friend Fanny wants to open a flower shop in Sacramento, California. The name she wants, Flowers by Fanny, LLC is already in use. So she comes up with a new one: Fanny’s Florals and Design, LLC. This name is similar to the original but includes new words, distinguishing it in the Secretary of State’s records.

Determine the Name Is Available

Of course, you will only need to make distinguishable changes if your name is already taken. Don’t make the mistake of ordering business cards, creating advertisements, and using a name on documents like the Articles of Organization without first confirming it’s available. Submit a Name Availability Letter to the Secretary of State’s Name Availability Unit (address below) to see if there’s an existing business using your desired name.

Maybe you pegged a distinguishable name right away, or maybe it took some modifications, but either way, once you have a unique name, you can lock it down by filing a name reservation.

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Optional: Name Reservation

You may have fallen in love with a particular name, but still have some preparation and paperwork to sort out before starting your LLC, and you’re worried that someone will swipe it in the meantime. To calm your nerves, you can reserve that name in California for a total of 60 days.

Think about Fanny. After making her name distinguishable, she’s ready to make it official, but if she’s waiting on some paperwork to start her LLC, she can place a hold by sending a Name Reservation Request and a $10 payment to:

California Secretary of State

Name Availability Unit

1500 11th St., 3rd Floor

Sacramento, CA 95814

The reservation can be renewed but not for consecutive periods. Only one request can be made per request form. Up to three names can be listed in order of preference, and the first available name will be reserved. Processing time varies but the Secretary of State keeps a running list of processing times here.

If you plan on checking for business name availability frequently, you can use the Prepay Priority Telephone Service, which allows you to start an account with $100 or more. After establishing the account, the state will simply withdraw $4 for each name availability check and $10 for each reservation. For information on setting up an account email or call the Secretary of State Fiscal Office at (916)653-1233.

Step 2: Agent for Service of Process

Fanny’s LLC is quickly taking shape, and if it’s going to operate in California, she’ll need a go-between for state and legal communications. This is called the agent for service of process.

An agent for service of process is a key component of your budding LLC, handling all of its sensitive communication with the state so you don’t have to. According to the State of California website, the agent for service of process is “designated to accept service of process (court papers) if the business entity is sued.”

LLC taxes, lawsuits, maintenance requirements, and more – your agent for service of process takes care of it all. If you had to do this yourself, it would pile additional tasks onto your already-full plate. Plus, your agent makes your business available to receive documents even when you’re out of town or away from the office. This is especially important if your physical office is outside California.

But maintaining an agent isn’t just a convenience, it’s required. Section 17701.13 of the California Code states that each California LLC must maintain both an agent for service of process and a registered office.

Simply include your desired agent’s name and address when you file the Articles of Organization and this information will be included on your LLC’s public record.

Your agent for service of process will fall into one of two categories: individual or business entity.

Individual as Agent for Service of Process

You may think that an individual agent would need specialized training or experience, but this isn’t the case. Anyone can serve as your agent for service of process, as long as they are a California resident and have a physical address in the state.

An attorney, consultant, or business partner can be wise choices because they understand the ins and outs of maintaining an LLC. But family members and friends are equally valid options. You can even appoint yourself provided you meet these requirements and are prepared to take on the added responsibilities.

Business Entity as Agent for Service of Process

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It can be a lot easier, though, to use an LLC formation service as your registered agent, so we highly recommend it. Not only will they take care of business formation requirements, but they’ll also include a free registered agent service. Or, if you’d rather start your LLC on your own, you can use a national registered agent service to cover your agent duties.

During the life of your LLC, you may, at some point, need to change your agent for service of process. Perhaps you want to switch from an individual to a professional service, or maybe your existing agent for service of process resigns. Either way, you’ll want to make the change as soon as possible because operating without an agent on file can lead to administrative dissolution.

Step 3: File the Formation Documents with the State

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This is where the LLC formation process kicks into high gear. Let’s check back in with Fanny.

She’s reserved her unique business name, designated an agent for service of process, and she’s ready to get her LLC off the ground. It’s time for Fanny to take on the most important LLC document: the Articles of Organization. This filing creates a record for Fanny’s Florals and Design, LLC with the California Secretary of State, giving it the authorization to commence business in the state.

You can file your Articles of Organization online, by mail, or in person. Each option is equally reliable and comes with the same $70 filing fee, so you can choose the one that best fits your preferences and timeline.

Online Filing

Get started by heading to the Bizfile online filing portal. Click the “LLC Formation” button and follow the instructions to complete your form.

Filing by Mail

Download, complete, and print a paper application. Include a check or money order for the fee payment, and mail your materials to:

California Secretary of State

Business Entities

1500 11th Street

Sacramento, CA 95814

In-Person

If you live near Sacramento or happen to find yourself in town, you may also hand-deliver your form and payment to the same address. There is, however, an additional $15 fee for forms submitted in person. Applications delivered in person will be given priority over mailed ones.

If you’re short on time and need to start your business ASAP, you can request one of three expedited processing options for an additional fee when you file in person:

  • 24-hour service for $350
  • 4-hour service for $500
  • Same-day service for $750

To use the Guaranteed Expedite Drop Off, your document must pass preclearance, which determines whether it complies with the law. For more information, visit the Preclearance and Expedited Filing page of the California Secretary of State website.

Standard processing times vary, but the Secretary of State maintains a running table of wait times, so you can check in to determine when your filing will be complete. Typically, online submissions are processed quicker than hard copy ones.

Step 4: Create an Operating Agreement

The operating agreement is the framework that holds up an LLC, the vital underpinning that establishes processes for its procedures, activities, and conduct. Essentially, it serves as your company’s bylaws.

As a California LLC, you aren’t required to create an operating agreement before opening your business’ doors in the state. Still, this document serves several vital purposes – it helps your LLC run smoothly, protects your assets in legal disputes, and gives you legitimacy in front of courts, banks, government agencies, other businesses, and more. You should think twice before proceeding without one.

Let’s say our friend Fanny sells a percentage of her company to two other owners. Her operating agreement could stipulate how the LLC’s assets would be distributed among them in the case of dissolution. But if she decided to maintain sole ownership, the agreement could be used in court as evidence that the LLC’s assets are separate from her personal ones. These are just two examples, but the operating agreement governs everything from member duties to the tax structure.

If you’ve decided to draft an agreement, there are two ways to go about it:

  • Write it yourself. Don’t be intimidated by this option. There are plenty of free online templates that serve as helpful guides. You can create an effective document from most of the templates out there, but our favorite free template is from TRUiC.
  • Hire an attorney. If you want to be absolutely sure that you don’t miss any important details, an attorney can write or review the agreement for you, ensuring that it includes all necessary information.

What are default laws?

Each state has its own set of generic, baseline laws for how LLCs should operate. These laws, however, only govern matters not included in your operating agreement. Take dissolution, for example. If your LLC ever dissolves, your operating agreement would determine what happens to its remaining assets and debts. But if you fail to include it in the agreement, the state will make that decision for you.

Because default laws are broad and not tailored to your specific business, they often aren’t in your LLC’s best interest, so it’s best to avoid them by being as comprehensive as possible in your agreement.

Step 5: Get an EIN

There’s simply no way to avoid taxes. In fact, it’s illegal to try, so don’t do it.

Federally, LLCs are classified as “pass-through” entities, businesses that don’t file corporate tax returns, but whose owners include income and losses on their individual returns. Still, there are certain circumstances that require LLCs to pay federal taxes, like classifying as a corporation, hiring employees, or selling merchandise. So, in Fanny’s case, if she plans on hiring additional florists and selling bouquets, she will need to apply for an EIN.

The Employer Identification Number (EIN) is a nine-digit number that the IRS will use to identify your company’s tax accounts, so if you pay any business taxes, it’s extremely important to have one. Click the “Do I need an EIN?” link on this page to see if you fall into this category. If so, apply for an EIN one of three ways:

Online

Need to get this done quick? File online – it’s by far the most efficient method. You can only complete the process between 7 a.m. and 10 p.m. EST, Monday through Friday, but you’ll receive your number immediately upon finishing the digital form. Keep in mind that you will need to provide a valid individual taxpayer number (like a Social Security Number) as part of the process.

Fax

You might prefer the feel and security of a paper form. In this case, download Form SS-4, complete it, and fax it to (855) 641-6935. You will receive your EIN within four business days.

Mail

Or, there’s always trusty postal mail. However, this is the slowest option, as processing typically takes around four weeks. If that doesn’t deter you, fill out Form SS-4 and send it to:

Internal Revenue Service Operation

Attn: EIN Operation

Cincinnati, OH 45999

Okay, so you’ve filed the Articles of Organization, designated an agent for service of process, adopted an operating agreement, and filed for an EIN. Time to start doing business, right? Sorry, there are a couple of additional steps you may need to take first. But don’t worry, you’re almost there!

Step 6: Taxes, Licensing, & Income Reporting

For all intents and purposes, most LLCs will be official after completing all the prior steps. Still, it’s important for business owners like Fanny to keep looking ahead, as there are certain maintenance requirements to keep a California LLC running smoothly and in good standing with the state.

Before you start doing business, create a plan for the following potential LLC requirements:

Federal Taxes

As mentioned earlier, LLCs are almost always classified as “pass-through” entities, which means that they don’t pay income taxes directly to the federal government. That responsibility falls instead on the owners, who must include business income and losses on their personal 1040 tax returns and/or Schedule C. LLCs are flexible with tax structure, so you can choose to have yours taxed like a corporation instead. In this case, it would need to file a separate corporate tax return.

State Taxes

Unfortunately, California’s state taxes aren’t quite as simple. The state requires every LLC to pay an annual franchise tax of $800 by filing Form 3522. Plus, if your LLC’s income is greater than $250,000, it will need to pay an additional fee ($900-$11,790). Along with this payment, your LLC will need to file Form 568.

However, if you’ve chosen to have your LLC taxed like a corporation, it must file Form 100, 100S, or 100W.

Payments are due on the 15th day of the 4th month after the beginning of the taxable year, most often on April 15. For more information visit the Franchise Tax Board website.

Additional Taxes

But the taxes don’t stop there. Your LLC might be responsible for specific business-related taxes if it meets certain conditions. Do you sell any merchandise? If so, your LLC will owe Sales and/or Use Taxes. Hire employees? Then it will be responsible for Unemployment Insurance Taxes.

Plus, depending on your LLC’s location, it may owe a local tax to its city, municipality, or county. Consult your local government’s website to find out.

Licensing

The Articles of Organization may have already made your business legitimate, but your LLC might still need to obtain a license before doing business. This all depends, however, on the type of business you run.

Remember our friend Fanny? She may need a License to Sell Nursery Stock from the Department of Food and Agriculture before she opens her flower shop’s door in California. Find out if your LLC needs any particular licenses by visiting the Office of Business and Economic Development website.

Certain cities and counties require their own specific licenses on top of any state ones, so you should also check with your local government.

Reporting

Once you’ve taken all the steps to start your LLC, you’ll be off and running, making deals and growing the company. But when things are moving 100 miles per hour, don’t forget that California requires all of its businesses to submit one important recurring filing: the Statement of Information.

Within 90 days of forming your LLC, you will need to file an Initial Statement of Information. After that, additional Statements of Information are due every other year by the end of your LLC’s anniversary month. Each report costs $20 and can be filed online or by mailing a hard copy to:

 Secretary of State

Statement of Information Unit

P.O. Box 944230

Sacramento, CA 94244-2300 

You can also drop the form off in person at 1500 11th St., Sacramento, CA 95814.

And we’ve come to the end. It’s a long process, and not always easy, but the reward is well worth it. If you’ve made it this far, congratulations! Your California LLC is ready for takeoff. So go ahead and start with that big sale, promotional campaign, or business deal. Maybe you’ll see Fanny out there in the business world, selling her beautiful floral creations.

Frequently Asked Questions

What are the business tax rates in California?

Every LLC in California needs to pay an annual franchise tax of at least $800 per year. In addition, you’ll need to pay the state’s income taxes depending on how you set up your LLC. If your business is taxed like a general partnership or sole proprietorship, you’ll need to pay taxes on your LLC’s profits according to the state’s personal income tax rates, which vary from 1% all the way up to 12.3%.

If you chose to set up your LLC to be taxed as a corporation, your LLC will be subject to the state’s corporate income tax rate of 8.84%.

How quickly does California process LLC formations?

The state of California has a convenient page on the Secretary of State’s website where you can see their processing speeds in real-time. While these times are subject to vary, at the time of this writing, it was taking the state roughly nine business days to process online submissions, 22 business days to process in-person filings, and 24 business days for mailed filings.

How many small businesses are there in California today?

The state of California is home to more than 4 million small businesses. Entrepreneurs of all backgrounds and business types find that California is a great place to own and operate a small business.

What are the top small business resources and websites in California?

The California Secretary of State has an excellent Business Resources page where you can find information about federal, state, and county agencies and programs for small businesses. The California chapter of the Small Business Development Center is also a great place to start, as are the California district offices of the U.S. Small Business Administration in Sacramento and Los Angeles.

Should I form my LLC in California, or choose a state like Delaware or Wyoming?

Some people like to form their LLCs in states with favorable legal settings. For instance, Delaware is often seen as the most business-friendly state, as it has an entire court system that’s dedicated solely to business matters. As for Wyoming, this state has some of the most generous anonymity laws for LLC ownership.

However, for most people, your best option is to simply form your business in your home state. Forming in a different state can be a tremendous hassle, and it can add some unnecessary complexity to tax issues as well.

Where Can I Learn More About the California LLC Licensing and Permitting Requirements?

Chances are, you’ll require at least one license or permit to operate your LLC in compliance with California state law. For more information about business licenses and more in this state, check out California’s business licensing FAQ page.

Do I Need to File a Statement of Information for My LLC in California?

Yes. Whether you operate a domestic or foreign LLC in this state, you are required to file a California LLC Statement of Information.

What Is the Total Expected Cost of Operating an LLC in California?

The overall costs of operating a California LLC can vary considerably based on the specifics of your business. However, we created a helpful guide to help you identify and plan for every expense your LLC will face in this state.

Should I Use an LLC Service, Hire an Attorney, or Form My Own LLC?

The answer to this question lies in your personal preferences, but we can give some general pointers. An attorney will cost the most by a mile, but also provides expertise you won’t find with the other options. The DIY route is free of charge but can require quite a bit of legwork and provides no peace of mind that the process is being completed correctly.

Using an LLC service means your business will be formed by professionals who know what they’re doing, while also costing significantly less than a lawyer. This “best of both worlds” attribute is what makes LLC services our preferred option.

How Do Online LLC Services Work?

Using an online California LLC service removes much of the hassle from the LLC formation process. With these services, all you need to do is provide them with the name, location, and industry your business operates in, along with some info about yourself and your California registered agent.

The service then files your Articles of Organization with the state to form your LLC in California.

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