If 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.
That said, the process can be complex, with various filings and costs, so if at any point you need help, you can hire an LLC formation service – they’ll take care of the paperwork so you can spend more time growing your business.
Recommended: Compare the Top LLC Services
If you’re new to the process of starting an LLC, you might also be unfamiliar with the LLC formation services that are reliable and offer great value – like ZenBusiness. As a reference point we compared them to the two most well known LLC formation services, IncFile and LegalZoom. See our comparison guides for more information:
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 abbreviation “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.
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.
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 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.”
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, have a physical address in the state, and are at least 18 years old.
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
It can be a lot easier, though, to use an LLC formation service like IncFile or Northwest Registered Agent, so we highly recommend it. Not only will they take care of business formation requirements, but they’ll also include a free agent for service of process. Or, if you’d rather start your California 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
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.
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
1500 11th Street
Sacramento, CA 95814
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 we recommend getting one through ZenBusiness, which includes a free LLC operating agreement with every package. This will save you a lot of time and money.
- 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 complies with state law, includes all necessary information, and avoids the state’s default laws.
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 or partnership, 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:
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.
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.
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:
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.
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 April 15. For more information visit the Franchise Tax Board website.
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.
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.
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.
Need Help Creating Your LLC?
If you even skimmed this guide to look over the steps, you likely got a sense of how many moving parts there are when starting an LLC. Can you do it all yourself? Absolutely. We have complete confidence in you.
But if you’d rather hand it off to someone else and not have to worry about it again, we recommend using an LLC formation service. This way, you can go about your other business responsibilities with the confidence that everything will be submitted correctly and punctually.
Plus, an LLC formation service can handle maintenance items like Statements of Information, so you can take them off your to-do list. And on top of that, many services also provide an agent for service of process.
Sound good? Whether you know that you’ll need an LLC service or you’re just exploring your options, take a look at IncFile and Northwest Registered Agent. These are two of the top services available. And you can take our word for it because we’ve done a whole lot of research on the topic.