Starting a business in California is an exciting venture. Still, it’s essential to set up the proper legal framework to protect your assets and add credibility to your business. Forming an LLC or Limited Liability Company is among the most popular options for entrepreneurs since it comes with liability protection and flexibility in management. Step 1 is to know how to form an LLC in California.
If you have ever wondered how to start an LLC in California, this guide will outline the process required to get your business off the ground and running successfully.
1. Name Selection
Step one in forming your LLC is choosing a unique, memorable, and indicative name that reflects the nature of your business. California requires that Limited Liability Company names differ distinctly from other registered entities to avoid confusion. You can check the availability of the name you have in mind by querying the California Secretary of State’s business database or using MyCorporation’s name search services.
Your name must also contain an identifier for a corporation, such as “LLC,” “L.L.C.,” or “Limited Liability Company.” Specific names are prohibited; avoid “bank,” “insurance,” or similar terms unless expressly permitted.
Tip: Formation packages through MyCorporation include a free business name search, conforming to California’s naming rules.
2. Decide on a Management Structure
An LLC can be managed in two ways:
- Member-Managed LLC: In this structure, all members (owners) participate in the day-to-day operations.
- Manager-Managed LLC: Members appoint a manager to handle daily operations while retaining ownership rights.
Most LLCs choose the member-managed structure for simplicity. However, the manager-managed structure is ideal for businesses that need external expertise or hands-off ownership.
3. Appoint a Registered Agent
California statutes require every LLC to have a registered agent, who is the agent through whom all legal and official documents are received. The agent need not be an LLC member; s/he may be any third-party service. The California registered agent must have a physical address in California.
For maximum privacy and professionalism, consider using the third-party registered agent services offered in the Deluxe and Premium packages for LLC formation with MyCorporation.
4. File Your Articles of Organization
To officially form your Limited Liability Company, you must file the Articles of Organization (Form LLC-1) with the California Secretary of State. This one-page document includes basic business details such as:
- The LLC’s name
- Principal business address
- Registered agent information
- Management structure
The filing fee for this document is $70, and once it is approved, your LLC is officially established.
5. Submit a Statement of Information
Within 90 days of filing your Articles of Organization, you must file an initial Statement of Information (Form LLC-12) with the California Secretary of State. This document provides updates on the LLC’s contact details, such as:
- Registered agent information
- Business address
- Names and addresses of members or managers
This statement must be updated every two years to ensure the state’s records are accurate.
6. Create an LLC Operating Agreement
An LLC Operating Agreement simply states how your Limited Liability Company is to be run and who has authority for certain actions within the company. Although this document does not have to be submitted to the state of California, it will provide useful and clear information about aspects such as:
- Ownership structure
- Voting rights
- Profit distribution
- Management roles
Many banks and finance institutions require an LLC Operating Agreement to open business accounts. MyCorporation includes sample agreements in all its formation packages for such convenience.
7. Obtain Business Licenses and Permits
All businesses in California need, at the minimum, a general business license or business tax certificate. Depending on your business type, other permits may also be required, such as a seller’s or health permit.
You should check with local city offices and MyCorporation’s compliance package to determine what licenses your business requires.
8. Get an EIN for Your Business
Getting an IRS Employer Identification Number is also quite important; it is used to report taxes, obtain checking accounts for the business, and hire employees. Applying for an EIN via the IRS website is very easy.
If your Limited Liability Company has employees or paid out more than $100 in wages in any calendar quarter, you should also apply for a State Employer Identification Number with the California Employment Development Department.
Ready to Start Your LLC?
Starting an LLC in California is a good investment decision to secure your future as you go into business. MyCorporation can assist you in starting and perfecting your LLC quickly and accurately without letting self-management fall victim to all the distractions. At the same time, you hone and build your business.
