Starting a business in California can be an exciting time. Before selling your product or service though, the nuts and bolts of licenses, registrations, and taxes must be completed.
The guide below will show you the DIY process of forming an LLC in California. However, you can also use an online LLC service handle the paperwork for you. We reviewed and ranked the 7 best available.
Step 1: Name Your LLC
Selecting a name for your California LLC is a first step, yet a very important one. A name that is unique and easy to remember is helpful in finding potential clients or retaining customers.
The name should indicate the product or service. It should also follow guidelines set forth by the state of California.
The name of an LLC will likely appear on business cards and stationary, marketing materials, a website, legal contracts, business bank accounts, invoices and/or a building directory.
It must contain the words, “Limited Liability Company,” or the abbreviations “LLC” or “L.L.C.” The words “Limited” and “Company” may be abbreviated to “Ltd.” and “Co.” Also, it may not contain the words “bank,” trust,” ” trustee,” “incorporated,” “ inc.,” “corporation,” or “corp.”
California law requires that the business name is different than other names already registered with the California Secretary of State. A name is considered distinguishable when it contains one or more different letters or numerals or has a different sequence of the same letters or numerals that is “plainly recognizable.”
Let’s imagine that someone is considering opening a flower shop in Sacramento, California. The name she is considering, Flowers by Fanny, is already in use. Instead, she decides to legally name her business Fanny’s Florals, LLC.
The following are not considered distinguishing features:
- Uppercase or lowercase letters, superscript or subscript letters, numerals, or an ampersand in place of “and”
- The use or absence of a business identifier such as the word “company”
- The use of articles or conjunctions
- The use of singular/plural or possessives
- The addition or omission of distinctive lettering or typeface, punctuation, symbols or spaces
- The use of numbers communicated differently: as numerals, Roman numerals, or written words
In addition, the name cannot be misleading to the public. A name that falsely implies affiliation with the following groups is considered misleading:
- A professional organization
- An insurer
- A charitable foundation
In the event that consent to use a similar name is obtained, a letter of consent needs to be forwarded to the California Secretary of State. For more information, see the California Code of Regulations on Business Entity Names.
Determine the Name is Available
Following the selection of a name but before filing the Articles of Organization, check to ensure that your name is unique on the Secretary of State Business Search or send a Name Availability Inquiry Letter to the Secretary of State. Searching in other places, such as online, is also a good idea.
After you have determined that your chosen name is “distinguishable,” the name can be registered in order that you have exclusive rights for 60 days.
Optional: Name Reservation
Sometimes a situation may arise where an individual wants a particular name but needs time to organize his/her company before filing paperwork for an LLC. In this case, a name can be reserved for 60 days in the state of California.
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. To reserve a name, fill out the Name Reservation Request Form, attach a $10 check (payable to the California Secretary of State) and mail to the following address:
California Secretary of State
Name Availability Unit
1500 11th St., 3rd Floor
Sacramento, CA 95814
The form can also be delivered in person to the above address. It does require an additional $10 handling fee.
Processing time varies. Updated times are posted on the Secretary of State website.
For those who frequently check for name availability or frequently reserve names, the Prepay Priority Telephone Service might be something to consider. It requires setting up an account with a minimum of $100. Each time an availability check is requested, $4 is withdrawn from the account, and $10 is charged for each name availability request. For information on setting up an account email or call, (916)653-1233, the Secretary of State Fiscal Office.
Step 2: Agent for Service of Process
Every LLC in California is required to have an agent for service of process (also known as registered agent). This agent can be an individual or a company.
The role of the agent is that of a contact person between the LLC and the state. As stated on 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.”
Simply put, the process agent receives communications or documents from the state involving such things as taxes or lawsuits and communicates them to the LLC.
Some may wonder why an agent for service of process is necessary. The importance of the agent is to ensure that someone is always available to receive important documents even if the business owner leaves the office, goes on vacation, or is otherwise away. Also, having an agent is especially important if a physical office does not exist in California.
The owner of the LLC can designate an agent for service of process on the Articles of Organization application.
Individual as Agent for Service of Process
Most importantly, the individual must be a resident of the state of California. An LLC cannot act as its own agent. Using a third party ensures that nothing falls through the cracks. The third party can be an accountant, an attorney, or even a friend. The agent must have a physical and mailing address in California.
Agent for Service of Process
If using a service, we recommend either using an LLC formation service (like Incfile or Northwest Registered Agent) which gives you a free agent for service of process or ordering a registered agent service by yourself if you choose to DIY your LLC formation.
If using a service, a Registered Corporate Agent for Service of Process Certificate must be filed with the state before the Articles of Organization application is filed. The application, which includes a $30 fee, can be completed online, by mail or in person.
Step 3: File the Formation Documents with State
Let’s assume that fictional Fanny has selected both the name for her LLC and the California registered agent. She is ready to complete the paperwork (called the Articles of Organization) that actually creates Fanny’s Florals, LLC in California.
This step can be completed either online, mailing a hard copy through USPS, or delivering the document in person. The filing cost is $70. When you are ready, it is important to note a few details about each method to ensure that your application is fully completed in the time frame in which you need it.
In order to complete an online application, the fee needs to be paid by credit card.
Hard Copy Filing
Applications and payments, by check or money order, can be sent to the following address:
California Secretary of State
1500 11th Street
Sacramento, CA 95814
The Secretary of State does maintain a Los Angeles office and offers limited services for business entities. Contact the office before delivering an application.
300 South Spring Street, Room 12513
Los Angeles, CA 90013
Processing times vary. Check the updated processing times on the website of the Secretary of State.
The Articles of Organization application can be delivered in person to the above address. Fees can be paid by check, money order or credit card. An option for expedited service is also available when delivering in person.
Counter Drop Off – For a $15 non-refundable fee, an application delivered in person will be given priority over applications that are received in the mail.
Guaranteed Expedite Drop Off – If time is of the essence, an application can be dropped off and processed in several guaranteed time frames.
- $350 for a 24-hour guarantee
- $500 for a 4-hour guarantee
- $750 for Same-day guarantee
To use the Guaranteed Expedite Drop Off, the document needs to first be precleared, or determined if it conforms to law. For more information, visit the Preclearance and Expedited Filing page of the California Secretary of State website.
Step 4: Create an Operating Agreement
An operating agreement in the state of California is recommended though not required. The agreement is a contract that defines the operations of the LLC, includes terms and conditions, states the responsibilities of its members, and ensures legal protections of its members.
All owners of the LLC must be in agreement of the terms in the agreement and sign before a notary public.
The operating agreement is useful for both multi-member and single-owner LLCs. In both cases, the agreement provides protections.
For example, in the case of the multi-owner LLC, the terms can stipulate what should happen if a death or divorce occurs among one of its members. In the case of the single-owner LLC, the agreement could be used in court as evidence that the LLC is separate from the individual owner.
The operating agreement can be created in two ways. Some individuals may choose to write the agreement on their own, using an online template. In this case, forms are available that are specific to state. Be sure to use the correct multi-member or single-member form.
The alternative is hiring an attorney to create the document. The benefits of using an attorney are ensuring the document doesn’t exclude any important information, adheres to state law, and invalidates default provisions that may not be what you wish.
Step 5: Get an EIN
An EIN is an Employer Identification Number. Anyone who runs their business as a corporation or partnership must file for this 9-digit number in order to identify the tax accounts of a business. The number can be applied for in one of the following three ways:
Applying online is the quickest method. The process can be completed between 7 a.m. and 10 p.m. EST, Monday through Friday. When the form is completed, the information will be immediately validated and a number issued while you are still online. In order to apply online, a valid individual taxpayer number, such as a Social Security number, is required.
Form SS-4 can be downloaded, completed and faxed to 855-641-6935, twenty-four hours, seven days per week. The EIN will be provided within four business days.
If either of the above methods are unavailable, Form SS-4 can be mailed, though processing will take approximately four weeks. The form can be mailed to the following address:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
Think you’re ready to open up shop now? Guess again!
Step 6: Taxes, Licensing & Income Reporting
Businesses like Fanny’s Florals, LLC may be official after completing the above steps, but it is important not to overlook a few critical details.
On the federal level, most LLCs do not pay taxes directly to the government. Instead, they report income and losses on the owner’s personal 1040 tax returns. Schedule C is often used for reporting. Unless the LLC chooses to be taxed as a corporation, a single-member LLC is taxed as a Sole Proprietorship and a multi-member LLC is taxed as a Partnership.
On the state level, unless electing to be treated as a corporation, an LLC needs to complete Form 3522 and pay an annual franchise tax. The tax is $800 plus an additional fee ($900-$11,790) if the LLC’s income is equal to or greater than $250,000.
If electing to be treated as a corporation, the LLC must file Form 100, 100S, or 100W. Some LLCs also need to file Form 568. Tax payments are due by the 15th day of the 4th month after the beginning of the taxable year. Late payments will result in penalties plus interest. For more information on the franchise tax, visit the Franchise Tax Board website.
Additional taxes that may be required for your LLC are state employer and unemployment insurance taxes (if your LLC has employees) and a sales tax (if selling merchandise).
Some businesses are required to be licensed before Articles of Organization can be filed. Licensing requirements can be found at the the Governor’s Office of Business and Economic Development website.
After an LLC is formed, an Initial Statement of Information must be filed with the state of California within 90 days of filing the Articles of Organization. A Biennial Statement of Information must be filed every other year by the end of the anniversary month that the Articles of Organization were filed. The cost of filing this report is $20. These reports can be filed online, by sending a hard copy through the mail or delivering in person.
Secretary of State
Statement of Information Unit
P.O. Box 944230
Sacramento, CA 94244-2300
Drop Off Address:
California Secretary of State
1500 11th Street
Sacramento, CA 95814.
When all of the mechanics of setting up an LLC in California have been completed, someone like Fanny can get down to the business of setting up a website, creating a logo…or purchasing flowers!
Need Help Creating Your LLC?
We recommend LLC formation services because it allows you to knock off an important thing off your checklist so you can focus all your energy on actually starting a business.
Can you do it yourself? Absolutely.
However, a service that forms an LLC for you will help with ongoing maintenance and keep you notified of any requirements you should adhere to.
As we mentioned earlier, IncFile and Northwest Registered Agent are the top LLC services online. If you’re not familiar with them, as a point-of-reference many of our readers like to compare them to the most well known LLC service, LegalZoom.