How to Start an LLC in California 2024: Step-by-Step Guide

Vault’s Viewpoint

• Starting a California LLC begins with visiting the Secretary of State’s website.
• Make sure that the business’s name is unique in the state by doing a name search.
• File articles of organization with the Secretary of State to create the business entity.

How to Start an LLC Business in California

Here’s the step-by-step guide to registering an LLC in the state of California.

Step 1: Choose a Name for the LLC

Every California business must have a unique name so that it’s not confused with other companies’ products or services. To find out whether the name you have in mind is unique, go to the Secretary of State’s website and conduct a business search. This will give you the names of corporations, LLCs and limited partnerships registered with the state.

Failure to follow the rules for naming a company will result in your application being denied. First, your name must be composed of the English alphabet and Arabic numerals. You can’t use Roman numerals for a business name.

You will need to have an entity identifier in the name. This means that a limited liability company must include one of the following in the name:

• Limited Liability Company
• LLC
• L.L.C.
• Ltd. Co.
• Limited Co.
• Ltd. Company

You can’t choose a name that is the same or similar to an active domestic company or another company that is a foreign company that is allowed to conduct business in the state. To determine if a name is too similar to an existing business’s name, look for the same words, regardless of case, font, or typeface. Accent marks are not recognized as differentiators, either.

You also can’t use a name that would mislead the public, such as one that uses terms that suggest the company is a government or federal agency.

Step 2: Select a Registered Agent

A registered agent is a person or business that is designated as the individual who will receive legal documents on behalf of the company. This person must be a California resident or a company that’s authorized to do business in California to be a registered agent. The registered agent must also be at least 18 years of age and have a valid physical address in California. They must be available at the physical address during business hours to receive paperwork, including tax documentation or legal fillings.

It’s possible that one of the owners of the company is named the registered agent and will accept documents at the place of business. However, you can also hire a registered agent to receive such documentation. It can cost around $49 per year or more to hire a professional registered agent.

Note the information of the registered agent. These details will be necessary when you file for the articles of organization. Make sure that the registered agent understands their responsibility to accept documents and notices and relay them to the owners in a timely fashion.

Step 3: File the Articles of Organization

California uses Form LLC-1 as an information form along with the Articles of Organization. It costs $70 to file with a check made payable to the Secretary of State. It takes five business days to process. Faster service can be obtained when filing directly online.

The form will ask for pertinent information about the LLC, including the name of the company, the business address, the registered agent’s information and how the company will be managed. The owner signs the form and either submits it through the online portal or mails it to:

Secretary of State

Business Programs Division

Business Entities

1500 11th Street

Sacramento, CA 95814

The information on the LLC-1 becomes part of your organization’s public record. This means anyone can search the company name and find out who the registered agent is to serve documents to. The company will also take the names of owners or members through a Statement of Information, which is also public information.

Step 4: Write an Operating Agreement for the LLC

California does not require businesses to create an operating agreement, but it’s highly recommended to help the company stay organized. The operating agreement is a document that states how the company is managed and run, members’ ownership percentages and how the company will be dissolved.

Operating agreements are helpful because they outline to the members what their roles and responsibilities are within the company. They make it clear who is supposed to do what and how the company should function. This becomes the framework for day-to-day operations.

A good operating agreement has the following clauses:

• Members’ percentage of ownership
• How voting rights work and who has what responsibilities
• Powers and duties of members and managers
• How profits and losses are distributed
• When and where meetings will take place
• What the buyout and buy-sell rules are for members to exit the organization

Step 5: Obtain an Employer Identification Number (EIN)

The Employer Identification Number (EIN) is a nine-digit number issued by the IRS that is a unique tax identification number. It’s similar to your personal Social Security number. You will use this number to file taxes, get a bank account and obtain permits and licenses. The IRS issues these numbers for free. All you need to do is fill out Form SS-4 with the IRS or complete it online. It takes a few days to process the form and get the EIN.

When you get the EIN letter in the mail, add this document to a company binder that has the articles of organization and operating agreement. You’ll need to access this number regularly and don’t want to misplace the document.

One thing to keep in mind when filing company taxes is that you want to determine if the income and expenses will be passed through to the members who file it on their personal income tax forms or whether the company will file its own income tax as a corporation. This is an option that members have. While filing as a pass-through entity will help alleviate double taxation, filing as a corporation will eliminate the need to pay self-employment taxes. Talk to your tax advisor to determine the best filing status for your new company.

Step 6: File a Beneficial Ownership Information (BOI) Report

As of January 1, 2024, all new LLCs must file a BOI report to the Financial Crimes Enforcement Network within 90 days of their LLC’s formation/registration. LLCs created before January 1, 2024, have until January 1, 2025, to file their BOI report.

This law is meant to impede criminals who use LLCs as shell companies. Filing your BOI report is free. Failure to comply will result in civil fines of $500 per day and can get as serious as criminal penalties of $10,000 and two years in prison.

Step 7: Open a Bank Account

You opened an LLC to limit your liability. To ensure that your personal assets are protected, you need to open a business bank account that will handle all income and expenses. You will take the EIN to the bank and complete an application for a new business account. You will likely also need to provide the bank with the articles of organization, so having your company binder with you will be useful.

Be sure to understand how the business bank account works. There may be minimum deposit limits, caps on transactions and other fees that you will want to address. As a new business, you likely want a bare minimum account so that you can avoid paying fees.

Keep all personal assets out of the business account and keep all business assets in there. Don’t combine business and personal finances to ensure you maintain the liability protection that you signed up for.

How Much Does It Cost to File an LLC in California?

The cost of registering an LLC varies by state. It costs $70 to file directly with the Secretary of State to obtain an LLC in California. You can hire a company formation organization to file the forms for you and pay an additional fee for their work. Every LLC in California will also pay an annual franchise tax fee of $800. This is due regardless of whether you earned income and are doing business or not. You must pay this franchise tax fee by the 15th day of the fourth month after you file for your LLC to avoid penalties.