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LLCs, or limited liability companies, are business entities operating out of a specific state. Its structure keeps personal and business finances apart while offering tax benefits to owners.
Forming an LLC is no easy task, and each state has different requirements for allowing such a business to function. This article provides all the information you need to form an LLC in California.
What You Need to Know Before You Create an LLC in California
You must submit your Organization Articles to the State Secretary of California, which costs $70 online, in order to establish a California LLC. Applications may be submitted online, in person, by mail, or by fax. Articles of Organization are the required paperwork for forming a California limited liability business.
To receive a legal process served on your California LLC, you must designate a California agent. In certain places, the term “Registered Agent” is used interchangeably with “Agent for Service of Process.”
Within 90 days after their establishment, all California LLCs must submit a Form LLC-12, Initial Statement of Information, to the State California Secretary of California State. You may send this through the mail, in person, or online.
An LLC must pay an $800 franchise tax charge in order to conduct business in California. Irrespective of whether the company generates any revenue, this charge must be paid annually.
An extra yearly charge is also necessary if your LLC’s gross annual sales are more than $250,000.
For LLCs established in California between 2021 to 2023, there is an exception. California’s current minimum franchise tax of $800 is waived for the first taxable year of every limited liability company (LLC) that legally registers to start or organizes to conduct business in the state under the new law. The LLC is obligated to pay the $800 charge during the second tax year.
- Relevant LLC Filing Authority: California Secretary of State
- LLC Initial State Filing Fee: $70
- Payable to: CA Franchise Tax Board
- Annual Forms: Statement of Information
Why Hire an LLC Service for your California LLC
It may be possible to work through how to start an LLC in California on your own, but the process relies on having an understanding of the state’s nuances. Missing a single step can see your application rejected, requiring more time and possibly money before you can do business.
California LLC services know the ins and outs of each state, ensuring you’re able to file successfully in a minimal amount of time. These services often continue to provide resources and wisdom as your business grows and keep your company compliant. Not having to worry about these administrative dealings frees you and your team up to tackle more important issues.
That said, not all California LLC services are the same. We recommend using one of the best LLC services mentioned below for your filing process.
Step 1 – Find a Name for Your California LLC
When you’re ready to open an LLC in California, giving your business the right name is essential. As likely the first thing your potential customers will see, it needs to be both clear and memorable. You’ll use this same name when marketing, setting up business contracts, and even dealing with legal matters.
You can call your company almost anything you’d like, and it’s okay to have fun with it. Keep in mind that long or complicated names can get lost on customers who won’t remember or understand what your business is all about.
Clear and concise often wins the prize, but give your venture the chance to grow. For instance, don’t let your name shoehorn the business into one city if you plan to someday expand to a global enterprise.
The name you choose must be unique. If another company has already claimed the moniker, you’ll face rejection when you apply for an LLC in California. Make sure your business name doesn’t mislead people, either. California won’t let you imply you’re a bank or government entity if your organization has nothing to do with that area. Only allude to the fact you’re a licensed professional if that is indeed the case.
During California LLC registration, the state will require you to indicate your business structure. For an LLC in California, your legal name must include one of the following conventions:
- Limited Company
- Ltd. Liability Co
- Limited Liability Company
To see any additional naming guidelines when opening an LLC in California, check out the California Secretary of State’s Business Entity Names regulations.
Check if the Name is Available in California
Since your business name must be original to open an LLC, California provides a list of unavailable titles to steer clear of. Any of the California LLC services above can check the database, so you know in advance whether that particular name will work. It’s still possible for someone else to grab the name before you apply for an LLC in California, so don’t wait any longer than you have to.
Purchase Your Business Domain Name
As you identify the name perfectly suited for your business style, don’t forget about the additional customers the world wide web can bring in. After confirming the ideal designation is available in California, jump online and purchase the domain as well.
This ensures you can bring your business online under the same name, avoiding customer confusion while creating a seamless experience. NameCheap offers some of the cheapest domain names for building your digital presence.
Step 2 – Get a California Registered Agent
As you work out the details of how to form an LLC in California, you’ll need to decide on a registered agent. A registered agent serves as your business’s official point of contact for governmental and legal matters. This could include a court summons, notifications to complete documents, or requests from the California Secretary of State. LLC businesses must have a registered agent to serve as a liaison.
There aren’t many restrictions on who can serve as your company’s registered agent. For the most part, individuals must be at least 18 years of age, have a physical address in California, and be able to work during regular business hours.
You can choose to be your own registered agent as long as you meet the above criteria, but it’s usually not advisable to do so. For one, being a registered agent requires being available at your office during all business hours. If you miss a time-sensitive delivery, the consequences for your company could be severe.
It’s also possible to use a service as your company’s registered agent. These organizations must have the authorization to operate in California, but the best agencies have physical addresses in all 50 states. Some of the best options currently available are
These services also have the ability to complete the entire California LLC formation process for you if you so desire.
Having a reputable registered agent on hand saves loads of time on paperwork and other administrative tasks, freeing you up for more important matters. You’ll have peace of mind knowing your legal affairs are taken care of while giving you the flexibility to work on your schedule.
Step 3 – File the California LLC Articles of Organization
The next step in learning how to file an LLC in California revolves around creating necessary documents. Referred to as articles of organization, certificates of organization, or certificates of formation, this form contains a list of information about your company the government requires to recognize you as a business entity.
As you apply for an LLC in California, you’ll have to locate the guidelines for your articles of organization on the state website. You can usually complete the form online but can also print a copy and fill it out by hand.
To fill out the form, you’ll need to have the following information about your business readily available. Failing to provide even one of these pieces of information will likely have your certificate rejected by the state of California.
Be sure to consider all the factors listed earlier in this article when choosing a title for your business. Names that don’t meet California’s requirements will lead to rejection.
You’ll need an actual street address for your LLC in California. It’s not possible to use a P.O. box or a residence that’s out of state.
You are required to identify the individual or service acting as your registered agent at the time of LLC formation in California. The state will also ask you to confirm your registered agent’s physical address.
An LLC in California can do just about anything so long as it’s a lawful operation. The state may ask you to list a specific professional purpose, such as shoe vendor or medical clinic.
Names of Owners
California wants to know the names of anyone considered an owner of your business. Even if you’re operating a single-member LLC in California, be sure to list that in your documentation.
Duration of Business
Upon creating an LLC, California requires knowledge of how long it will exist. You can create an LLC for an unlimited duration or have a set dissolution date.
After answering the series of questions, your articles of organization are ready for submission. At present, California has an initial filing fee of [AMOUNT] payable when you send in your document. To file your LLC in California, you need to file the Articles of Organization (Form LLC-1) with the CA Secretary of State.
Step 4 – Receive your California LLC Registration Certificate
Once your articles of organization are out the door, the state of California will review your information before accepting your application. Depending on the time of year, the process tends to take somewhere between two and six weeks to complete the formation of an LLC in California. However, delays can occur if there’s an issue with your LLC name or some other part of your form.
With an approved California LLC registration certificate in hand, your business is officially considered a limited liability company. From here, you can start to do business in your state and obtain an EIN for tax purposes.
Step 5 – Create a California LLC Operating Agreement
An Operating Agreement is an internal document designed to lay the groundwork for your LLC’s financial, legal, and operational aspects. It acts as a set of customized rules members of your LLC must follow when handling day-to-day affairs and becomes a compass for your business to follow.
Creating an Operating Agreement is a legal requirement in California, and it’s also wise to have one on hand regardless. Doing so at the onset of your LLC establishes your business structure early on and allows fewer opportunities for conflict or discord.
Having the following information in your business’s Operating Agreement serves as a baseline to build off of.
- Basic Company Information: Here you’ll list your business name, address, and any names you’re doing business as. It’s also helpful to record your registered agent’s information, your organization’s purpose, and the duration of your LLC in California. As a general rule of thumb, capture any and all information contained in your articles of organization.
- Member Information: If you have a team of members working at the top level, you’ll want to document who these individuals are and where each one lives. Since every member serves a different purpose, you’ll need to establish ownership percentages and what their specific responsibilities are. This section is also crucial for identifying ways members can join or exit the company and any implications they may face.
Furthermore, decide who gets to vote on important decisions and how much weight that vote casts. The operating agreement is also a good place to make note of any capital, assets, or services a member has contributed to the LLC.
- Tax Treatment: There’s a lot of flexibility surrounding LLCs and taxes. Typically treated as pass-through entities at the federal level, LLCs don’t pay taxes on business income. Instead, its members pay taxes based on their share of the profit. Providing your LLC’s tax structure in your operating agreement serves to negate any questions about the matter.
- Accounting: Information related to accounting should contain the start and end of your fiscal year and how your company plans to keep financial records. As you generate profit, there should be no question about how to distribute those funds within the organization.
- Making Changes: The operating agreement is a fluid document, but frequent edits can create a sense of chaos and disorder. Within the document itself, list the process of making changes and who has the authority to do so.
- Dissolution: Whether planned or unplanned, here you can list what happens if and when your LLC dissolves. You’ll want to list the criteria for termination and what happens to assets, contributions, and members when the time comes.
In any area of life, having a clear set of rules to follow creates a sense of purpose, direction, and clarity. An operating agreement holds your team to a certain standard and offers common ground for all to stand on.
Without an operating agreement, California requires you to follow their default rules, often too general for a proper LLC. You increase your chances of flourishing by establishing key business procedures your team can live by.
Step 6 – Get an EIN for Your LLC in California
When starting an LLC in California, an Employer Identification Number (EIN) will serve as your company’s federal tax identifier. This nine-digit number is required by the state of California for any LLC with more than one member. In many cases, your company will use an EIN to pay federal taxes, apply for various business licenses, or open a business bank account.
Even if you’re the only person in your organization at present, it’s wise to pick up an EIN for business matters. Doing so allows you to separate personal and business finances, which is helpful in money management. Otherwise, you’re required to use your Social Security number and run the risk of identity theft. When it comes time to hire your first employee, you’ll be one step ahead of the game.
Having a tax identifier for your business can also provide credibility while getting things off the ground. An EIN helps build trust with vendors and start building business credit.
As soon as you receive your business’s registration certificate, you can apply for an EIN. The IRS will create an EIN for you at no charge. It’s possible to apply online through the IRS website for immediate issuance. Anyone desiring to apply via fax or mail will have to wait a few days to a few weeks before obtaining an EIN.
Step 7 – Keep Your California Limited Liability Company Compliant
Following these steps showcasing how to create an LLC in California is not the end of the process. Some states require annual fees for you to maintain business and reports to keep their records up to date. These policies frequently change, so be sure to check with relevant state authorities about all the legal requirements for compliance after filing for an LLC in California.
It can be a challenge to keep up with LLC maintenance requirements, especially if your company crosses state lines. Should your business fail to remain in good standing with the state of California, you may face significant fees, penalties, and run the risk of not being able to continue business.
Fortunately, LLC services are well aware of state demands and will take care of the necessary paperwork for you. You won’t miss a compliance deadline and can instead focus on growing your business.
Best LLC Services to Register your Business in California
There are several LLC services well equipped to show you how to open an LLC in California. Here’s a list of our favorites:
ZenBusiness is one of the cheapest LLC services available, starting at just $49 before state fees. The filing process is lightning fast, so you can be up and running as soon as possible. The company cuts through the red tape with a simple setup process that takes the guesswork out of filing.
Its customer service team has a solid understanding of how to get an LLC in California and is on hand 12 hours each day. Looking beyond the formation of your LLC, ZenBusiness can also help with business management and help you save effort when tax time rolls around.
Inc Authority enters the picture with over 30 years of business formation experience to its name. Best of all, the company will create your LLC in California for absolutely nothing out of pocket. All you have to worry about are mandatory state fees for initial startup.
To sweeten the pot further, Inc Authority adds in a business name check, one year of registered agent service, and tax planning for free as well. Its team strives to be there for you as your business grows, offering budget-friendly options to keep your organization compliant. Any purchases you do make are final, as Inc Authority does not have a refund policy.
Incfile offers several startup services new LLCs need to start off on the right foot through a handful of carefully crafted plans. Its most basic plan won’t cost you a thing but contains little more than business formation, name checks, and a year of registered agent service.
Upgrading to a higher tier provides access to tax consultation, a business banking account, EIN, and more if you find such features worth the cost. On the highest level, you’ll even receive a domain name and business email to give off that professional vibe from day one.
MyCompanyWorks has three tiers of service you can pick from when starting your LLC, depending on your needs. At a minimum, $59 will get you LLC formation and a handful of savvy business tools. Paying $279 unlocks report services and compliance checks along with a registered agent.
You can personalize and customize your business creation with the MyCompanyWorks startup wizard, included in all service tiers. This unique feature makes it easy to stay organized every step of the way. No matter which option you choose, you’ll have 90 days from the time you sign up to request a full refund if you’re not satisfied.
Northwest Registered Agent is understandably best known for its registered agent service, but the company doesn’t stop there. When signing on, you have the option to pay upfront or over monthly installments to suit your budget. Depending on which route you go for LLC formation, Northwest may throw in an EIN or registered agent service for free.
The customer service team is another of Northwest’s shining lights, featuring both excellent and accessible support. It is one of the few LLC creation services that makes a note of protecting your privacy with extra security to keep information safe.
LegalZoom has extensive knowledge when it comes to business formation, providing services for every entity under the sun. Your LLC aside, you can also use LegalZoom for property deed transfers to living wills and everything in between.
Its fees start at $79 before state fees when filing for an LLC but can grow somewhat depending on which other services you add to the mix. There is no risk when testing the waters with LegalZoom, as you have 60 days to cancel for a complete refund.
How to Start an LLC in California – Frequently Asked Questions
Starting an LLC in California can be a challenging process. The answers below serve to clear up some common areas of confusion.
What is an LLC?
An LLC, or limited liability company, is a business structure allowed in your state of residence. As a private venture, anyone engaging in a lawsuit with an LLC cannot legally come after a business owner’s personal assets. Due to how they are structured, LLCs also come with tax benefits seen in sole proprietorships or partnerships.
Do I Require an EIN to Run an LLC in California?
Any LLC requires an EIN in California if it employs more than one individual. Before hiring anyone to work for you, you will need to request an EIN from a business formation service or the IRS. Even a single-member LLC in California should obtain an EIN for the professional appeal and to help keep personal and business finances apart.
Can I create an LLC for free in California?
The only required payment when starting an LLC in California is the initial filing fee required when you submit your articles of organization. Some LLC formation services don’t charge for helping you get your business off the ground.
What is the best state to open an LLC?
Many believe Delaware is the best state to open an LLC, thanks to its fast process and business-friendly legal system. Nevada and Wyoming do not have individual income taxes, making them strong candidates as well.
However, it’s almost always best to file an LLC in your home state if at all possible. You should have a deeper understanding of the laws of your state and will remain a hub for your business.
Do I Need a Registered Agent to Run an LLC in California?
Yes, California requires you to have a registered agent to file for an LLC. While it is possible to be your own registered agent, this role is often best left to a separate service.
Can I be my own registered agent in California?
It is possible to be your own registered agent in California, as long as you’re at least 18 years of age, have a physical address there, and can work during all regular business hours. To reduce personal stress and allow for flexibility, it’s typically a good idea to have a registered agent service perform the duty.