How to Start an LLC in California: (A Step-by-Step Guide)

Did you know that California is home to over 4 million small businesses? The Golden State offers a fantastic environment for entrepreneurs starting their ventures.

If you want to launch a new business, forming an LLC in California can provide limited liability protection and a flexible management structure.

To establish your LLC successfully in the Golden State, you need to select a unique name, choose a registered agent, file your articles of organization, and file a statement of information.

Filing the Articles of Organization costs $70, and filing an Initial Statement of Information is $20 every two years. Also, every LLC in California has to pay an annual franchise tax of $800.

This guide will teach you the essential steps to start an LLC in California.

What Are the Steps to Start an LLC in California?

To start an LLC in California, you need to:

• Step 1. Choose and search for a unique name
• Step 2. Choose a California registered agent
• Step 3. File Articles of Organization with the California Secretary of State
• Step 4. Create an Operating Agreement
• Step 5. Get Tax Identification Numbers
• Step 6. File a Statement of Information
• Step 7. File a BOI report
• Step 8. File your $800 Annual Franchise Tax & Estimated Fee

Step 1: Select a Unique Name for Your California LLC

Choosing a name for your LLC is an essential first step. Your name needs to be unique and follow specific rules set by California.

Start by searching for your desired name. Use the California Secretary of State’s Business Entities Search. This tool helps you see if the name you want is already in use. If your name has already been taken, you must choose a different one.

Make sure your name meets these guidelines:

• It must be distinct from existing names in California.
• It should include “Limited Liability Company” or “LLC.” You can use abbreviations, such as “Ltd.” for limited and “Co.” for company.
• Avoid words confusing your LLC with government agencies, like “state” or “treasury.”

If you find a name you like but aren’t ready to complete your paperwork, you can reserve your California LLC name for 60 days. This gives you time to finalize your plans without the risk of someone else using your name.

Some businesses operate under a formal LLC name while using a “trade name” or “DBA” (short for “doing business as”) for day-to-day activities. A DBA acts as an alias for your business and doesn’t require the inclusion of the LLC designation.

You can check if a specific DBA is already used on the California Secretary of State’s website.

Step 2: Choose a California Registered Agent

For LLC purposes, a registered agent is also known as an “agent for service of process,” as they are called in California. This person or business accepts legal and tax documents on your behalf.

Who Can Be a Registered Agent?

You have a few options for who can be your Registered Agent in California:

• You: You can act as your registered agent, but remember you must be available during business hours to receive documents.
• A Family Member: A trusted family member can be your registered agent.
• An LLC Formation Service: Professional services offer expertise in handling official correspondence and ensuring compliance with state regulations.
• A Lawyer: A legal service firm can also serve as your registered agent, providing additional legal support if needed.

Requirements for California Registered Agents

California law requires registered agents to have a physical street address, not just a P.O. Box. The address must be where the agent can consistently receive legal documents and official mail during regular business hours.

Additionally, the registered agent must be at least 18 years old and available to accept service of process. This means they must be present to handle any legal notices or court documents delivered to the LLC.

The agent may be a member, manager, or officer of the LLC, but the LLC can’t serve as its registered agent.

What registered agents do I recommend for California?

I highly recommend Northwest registered agent services for obvious reasons.

They offer a range of benefits that set them apart, including a free year of registered agent service, which helps you save (about $300) on initial costs.

You’ll receive a complimentary operating agreement essential for outlining your LLC’s internal structure. My favorite part? Northwest also allows you to use their office address for your LLC filing, keeping your address off public records and enhancing your privacy.

Their free email forwarding service ensures you stay on top of important correspondence, and their exceptional customer support is always available to assist you whenever needed.

Step 3: File Articles of Organization with the California Secretary of State

To start your LLC in California, you must file the Articles of Organization (Form LLC-1), which is essential for officially creating your business.

The Articles of Organization is the most critical document that officially registers your LLC with the state of California. This form includes essential details such as your LLC’s name, address, registered agent, and members’ or managers’ names.

To file your Articles of Organization in California, follow these steps:

Step #1. Complete the Form: Obtain and complete the Articles of Organization form from the California Secretary of State website.

In your Articles of Organization, provide the following details:

• LLC Name
• LLC Business Address
• Registered Agent (Service of Process): Name and address of your registered agent.
• Management Structure: Indicate whether your LLC will be managed by its members or designated managers.
• Purpose Statement

Step #2: File Online, in Person, or by Mail: You can file your Articles of Organization online through the California Secretary of State portal.

You can mail the completed form to:

Secretary of State
Business Entities Filings
P.O. Box 944228
Sacramento, CA 94244

You can also choose to file in person at:

1500 11th Street
Sacramento, CA 95814

Step #3: Pay the Filing Fee: The Articles of Organization cost $70 if filed online. If submitted in person, there is an additional $15 handling fee.

Once your articles are filed, the state will review and approve them. This process usually takes a few business days.

Step 4: Prepare Your California LLC Operating Agreement

An operating agreement is a vital document for your California LLC. It outlines the ownership structure and defines how your business will run.

California is one of five states that require businesses to create an operating agreement. LLC owners must have one before or after formation, ideally in writing.

Having one helps clarify your business’s legal structure. It shows your intention to limit personal liability, which protects your assets.

This document should cover several key areas:

• Ownership Structure: Listing all members and their ownership percentages.
• Management Roles: Specify who will manage the LLC. This can be member-managed or manager-managed.
• Voting Rights: Define how decisions will be made. Will all members have equal votes?
• Profit Distribution: Explain how profits and losses will be shared among members.
• Meeting Procedures: Outline how often meetings will occur and how members will be notified.
• Amendment Process: Describe how changes can be made to the agreement in the future.

Your operating agreement for an LLC must contain the following details, as outlined by the California Revised Uniform Limited Liability Company Act:

• The relationships among members and between members and the LLC
• The rights and responsibilities of individuals acting as managers
• The scope of the LLC’s activities and how they are to be conducted
• The methods and conditions for making amendments to the operating agreement

Keep a signed copy of your operating agreement with your official business documents. This gives you a precise reference point for your LLC’s operations and member agreements.

Step 5: Obtain a Federal Employer Identification Number (EIN) for Your CA LLC

An Employer Identification Number (EIN) is a unique nine-digit number the IRS assigns. It identifies your business for tax purposes.

You will need an EIN to open a bank account, hire employees, file taxes, and apply for business licenses and permits.

How to Apply for an EIN:

• Online: Visit the IRS website. This is the fastest way to get your EIN.
• By Mail: Fill out Form SS-4 and send it to the IRS. This option takes longer.
• By Fax: You can also fax the completed Form SS-4.
• Phone: U.S. residents can call the IRS at 1-800-829-4933 to apply.

How Much Does It Cost To Get EIN?

Obtaining an EIN is free. However, some services charge $100 or more to help you with the entire process.

How Does it Take to Obtain my EIN?

• Online: Get it immediately.
• By Mail: Expect 4 to 6 weeks.
• By Fax: Usually within four business days.

Step 6: File your Initial Statement of Information

After your Articles of Organization are accepted, California mandates that you file an initial “Statement of Information” within 90 days of establishing your LLC. You must renew this filing every two years to keep your business in good standing.

This is also called a “Biennial Report,” which can be completed using Form LLC-12.

What to Include in Form LLC-12:

• Your LLC’s name and Secretary of State entity number
• The name and address of your agent for service of process
• A brief description of your business activities
• The street address of your LLC’s principal office
• The mailing address, if different from the main office
• Names and addresses of any managers or members
• A valid email address for electronic notifications

The filing fee for the Statement of Information is $20 every two years. Your first Statement of Information must be filed within 90 days of LLC approval. Subsequent filings are due every two years on your LLC’s anniversary date.

To file your Statement of Information in California, follow these steps:

Step #1. Complete the form.

Step #2: File Online, in Person, or by Mail: You can file your Statement of Information online through the California Secretary of State portal.

You can mail the completed form to:

Secretary of State
Business Entities Filings
P.O. Box 944228
Sacramento, CA 94244

You can also choose to file in person at:

1500 11th Street
Sacramento, CA 95814

Step #3: Pay the Filing Fee: The Statement of Information costs $20 if filed online. If submitted in person, there is an additional $15 handling fee.

Your first Statement of Information must be filed within 90 days of LLC approval. Subsequent filings are due every two years on your LLC’s anniversary date.

Keeping your LLC’s Statement of Information up to date ensures that your business remains in good standing with the state.

Step 7: File a Federal BOI Report

Filing a Beneficial Ownership Information (BOI) report is crucial for your new LLC in California. This requirement helps keep your business compliant with federal regulations.

You must submit your BOI report to FinCEN within 90 days of forming your LLC. This free electronic filing can be done online, making it straightforward.

What You Need to Gather:

• Company Information: Name, address, and type of business.
• Beneficial Owner Info: Names, addresses, and identification details of individuals who own or control the LLC.

How to File the Report:

• Visit the FinCEN website
• Create an account if you’re a first-time filer.
• Follow the prompts to complete the BOI report.

Keep a record of your submission for your files. To meet this deadline, add this task to your business setup checklist. Compliance with federal regulations protects your business and builds trust with partners and clients.

Step 8: File your $800 Annual Franchise Tax & Estimated Fee

All LLCs in California are required to pay an Annual Franchise Tax of $800 every year. This payment is due regardless of your LLC’s income or activity levels.

Deadlines:

• First Tax Payment: This is due 4.5 months after your LLC is approved. For example:
  • If your LLC is approved in September 2024, the payment is due by December 15, 2024.
• Ongoing Payments: After the first year, the Annual Franchise Tax is due every year by April 15th.

How to File:

You can file online by completing the LLC Tax Voucher (Form 3522). You can pay via a bank account (Web Pay) and credit card.

You can also file by mail by sending the completed CA LLC Tax Voucher to:

Franchise Tax Board
PO Box 942857
Sacramento CA 94257-0631

Using black or blue ink, make a check or money order payable to the “Franchise Tax
Board.” Write the California SOS file number, FEIN, and “2024 FTB 3522” on the
check or money order.

Estimated Fee

If your LLC expects to earn over $250,000 in gross receipts, you must also pay an Estimated Fee.

• This is filed using Form 3536.
• The first Estimated Fee is due by the 15th day of the 6th month after your LLC is approved. For instance, if your LLC is formed in May, it will be due by October 15.
• After your first payment, all estimated fees are due by June 15th each year.

California income rounded:

If the total California income rounded to the nearest whole dollar is:	The fee amount is:
$250,000 – $499,999	$900
$500,000 – $999,999	$2,500
$1,000,000 – $4,999,999	$6,000
$5,000,000 or more	$11,790

What are the Different Methods To Start a California LLC?

You have several options for starting an LLC in California, each with benefits and challenges. Depending on your needs and expertise, you can handle the process, use online services, or hire a legal professional.

DIY LLC Formation in California

If your business is straightforward and doesn’t require special licenses, you might prefer to handle the formation yourself. This option allows you to save money by navigating the filing process independently.

Pros:

• Cost-effective: Avoids additional fees for services.
• Direct control: You manage every detail of the process.
• Learning experience: Gain insight into regulations and requirements.

Cons:

• Time-consuming: Requires research and a good understanding of the process.
• Risk of mistakes: Errors can lead to delayed filings or legal issues.
• Limited support: You may feel lost without guidance.

Using a Professional/Online LLC Formation Services

If you want assistance without the expense of hiring an attorney, online LLC formation services can help. These companies often provide various packages that include features like registered agent services and tax advice.

Pros:

• Convenience: Streamlined process with easy-to-follow steps.
• Customization: Choose a package that fits your specific needs.
• Expert support: Many services offer access to professionals for questions.

Cons:

• Cost: Fees vary based on the services chosen, which can add up.
• Finding the right service: Research is needed to select a reputable company.

Hiring an Attorney

Hiring an attorney could be beneficial if your business involves complexities, such as multi-state operations or specific licensing. A lawyer can help draft an operating agreement and provide legal advice tailored to your situation.

Pros:

• Expert guidance: Receive personalized legal support throughout the process.
• Avoid pitfalls: An attorney can help you navigate potential legal issues.
• Long-term savings: Proper setup can prevent costly mistakes down the line.

Cons:

• Higher costs: Attorney fees can be significant compared to other methods.
• Possible delays: More steps may add time to the formation process.
• Finding a good fit: You must carefully select a qualified attorney.
• Dependence on Others: You may rely heavily on the attorney’s schedule.

What is The Cheapest Alternative Way to Form an LLC in California?

There are a myriad of California LLC services from which to choose. Choosing the wrong one can affect your California LLC formation timeline—I know this from my experience using a few and researching a dozen over the years.

Here are some top-rated options you should consider:

Best California LLC Service	Google Rating	LLC Formation Cost	Registered Agent Fee
Northwest Registered Agent	4.7/5	$39	Free for 1 year
Doola	4.6/5	$0 (plus state fees)	$297/year
Tailor Brands	4.4/5	$0 (plus state fees)	$199/year
ZenBusiness	N/A	$0 (plus state fees)	$199/year

Besides, the fact that other services bill you for their registered agent in the first year, and Northwest offers it for free, is a HUGE plus for me.

Northwest Registered Agent stands out from California LLC formation due to its commitment to transparency, customer service, and privacy. Using their address helps protect your personal information, making them a reliable choice.

How Much Does It Cost To Form an LLC in California?

Forming an LLC in California costs around $70, which covers the California LLC formation fees. However, there are other fees you need to be aware of.

Here’s a breakdown of the entire California LLC costs:

Requirement	Cost
Name reservation fee for 60 days	$20
New LLC Filing Fee (Articles of Organization)	$70
Operating Agreement	$100-$300
LLC formation service (Optional)	$39 (via Northwest)
Registered Agent Fee (optional)	$0 (via Northwest)
Initial Statement of Information/ Biennial Report	$20
California Annual Franchise Tax	$800/yearly
Total Estimate	$900 – $1200

When forming a new company in CA, it is ideal to budget about $900-$1200 for the first year. Then, if you want to go further, you can get other bells and whistles like a virtual mailbox, custom website, trademark services, premium EIN services, etc.

The most significant (and essential) expense for every California business owner is filing the Articles of Organization, which costs $70.

Pros and Cons of Forming an LLC in California

6 Important Things To Do After Forming Your California LLC

After forming your LLC, several essential steps can help your business thrive. These actions set a strong foundation for your LLC, from managing taxes to ensuring proper licensing.

1. Research the Best Licenses and Permits for Your Business

Identifying the proper licenses and permits is crucial for your LLC. Each industry has specific requirements. Start by visiting the CalGold website to explore state-wide business licenses.

Check with your city or county government to see what local permits are necessary. Some businesses may need health permits, signage permits, or zoning permits.

Use resources from business services to simplify this process. Ensuring you have the proper licenses can keep your business compliant and help you avoid fines.

2. Create Business Accounts for Your California LLC

Opening a separate business bank account is essential. This keeps your personal and business finances distinct. You will need an Employer Identification Number (EIN) to set up the account, which can be obtained for free from the IRS website.

Having a dedicated account helps with transparent record-keeping. It makes tracking expenses and income and preparing taxes easier. Consider getting a business credit card to manage the costs and build your business credit.

3. Understanding California Tax Requirements and Managing Your Taxes

California has specific tax rules for LLCs. You must pay an annual franchise tax of $800. This tax is due by the 15th of the fourth month following your filing date.

You must pay a fee if your LLC makes more than $250,000. LLCs must estimate and pay the fee by the 15th day of the sixth month of the current tax year.

Use Estimated Fee for LLCs (FTB 3536) to remit the estimated fee payment.

You’ll also need to consider sales tax if you sell products or services. To manage these obligations, keep track of deadlines and file required forms. Regularly review your income to ensure you meet tax requirements.

4. File Your Annual Report

All California LLCs must file an Annual Report, often called a Statement of Information. This document provides updated details about your business, such as your address and management structure.

The report is due every two years and costs $20 to file online. You must submit it to the California Secretary of State. Failure to file on time can result in fines. Make a reminder system to stay on track with these filings.

5. Get Business Insurance for Your LLC

Business insurance helps protect your LLC from potential risks. Various options, like liability and property insurance, can safeguard your assets against lawsuits or accidents.

Assess what type of coverage you need based on your industry. If you operate a storefront, consider general liability insurance.

This coverage can protect against claims related to injuries on your property. Review policies to find one that suits your business needs.

6. Setup Your Business Online Presence (optional)

In today’s digital age, online presence can significantly benefit your business. Start by creating a professional website. This platform allows you to showcase your services and connect with customers.

Consider using social media to engage your audience. Platforms like Facebook, Instagram, and LinkedIn can enhance your visibility.

California LLC vs. S Corp vs. Partnerships vs. Sole Proprietorship vs. Corporations

When starting a business in California, you have several structures, each with unique features.

Here’s a breakdown:

Sole Proprietorship

A California sole proprietorship is the most straightforward way to start a business. Imagine you’re running a lemonade stand on your own. You make all the decisions and keep all the profits.

However, there’s no legal separation between you and your business. If your lemonade stand faces financial trouble or legal issues, your assets, like your car or home, could be at risk.

It’s easy to set up and manage, but it does leave you personally responsible for any business debts.

Partnership

A California partnership involves teaming up with one or more people to run a business together.

Think of it as joining forces with a friend to open a café. You share the profits and responsibilities, and you both make business decisions.

However, like a sole proprietorship, each partner is personally liable for any business debts or legal issues. If the business encounters financial risk, personal assets could be at risk. Partnerships are relatively easy to set up but require clear agreements between partners to avoid conflicts.

LLC (Limited Liability Company)

An LLC offers a blend of flexibility and protection.

Picture it as a protective umbrella over your lemonade stand. This structure separates your assets from your business, so if your LLC faces legal issues or debts, your personal belongings are generally safe.

LLCs are more formal than sole proprietorships or partnerships but offer management and tax treatment flexibility. They are ideal for small—to medium-sized businesses that want liability protection without the complexity of a corporation.

S-Corporation

An S Corporation is a more structured business form.

Think of it as a business where owners are shareholders, much like a small-scale company with multiple investors. It protects liability and allows profits to pass through to your tax return, avoiding double taxation.

This means you report the income and losses on your tax return, which can be beneficial for tax purposes. However, S Corps have stricter operational requirements and formalities compared to LLCs.

Corporation

A California corporation is the most complex structure, suitable for larger businesses aiming for significant growth.

Imagine a big company with many shareholders. A corporation offers robust liability protection and is a separate legal entity from its owners, meaning your assets are protected.

Corporations can raise capital more efficiently by issuing stock and can offer employee benefits.

However, they come with extensive regulatory requirements, formalities, and paperwork, making them more suitable for businesses with significant resources and expansion plans.

My Final Thoughts: Forming an LLC in California

Starting an LLC in California involves several key steps:

• Choose a name for your LLC
• Select a registered agent
• File Articles of Organization
• Create an operating agreement
• Obtain an Employer Identification Number (EIN)
• File a Statement of Information
• Pay the annual franchise tax and estimated fee

Regarding costs, state filing fees for the Articles of Organization cost $70, and filing a Statement of Information costs $20. Remember that the annual franchise tax is $800, due every year.

Forming an LLC can provide personal liability protection and can enhance your business’s credibility. You can successfully establish your LLC in California with careful planning and understanding of the requirements.

Learn More About Starting an LLC in California

If you need additional help to start an LLC in California, check out these valuable resources:

Frequently Asked Questions

Can I change my registered agent in California?

Yes, you can change your registered agent in California. You must file the necessary forms with the state to update this information.

How do I change my California LLC’s name?

You must file an Amendment to your Articles of Organization. Ensure the new name complies with California naming rules.

How do I renew my California LLC?

Renewing your California LLC involves filing a Statement of Information every two years. It’s essential to complete this to keep your business active.

How do I dissolve an LLC in California?

You must file a Certificate of Dissolution with the California Secretary of State to dissolve your LLC. This officially ends your business’s legal existence.

How do I add a member to a California LLC?

To add a member, you may need to update your Operating Agreement. Make sure to follow any specific procedures outlined in your agreement.

How do I add a DBA to an LLC in California?

To add a DBA (Doing Business As), file a Fictitious Business Name Statement with the county where your business operates. This allows you to use a different name.

Can a minor own an LLC in California?

Yes, a minor can own an LLC in California. However, it may require a guardian or adult to handle legal matters on behalf of the minor.

What is the Cost of the California Biennial Report?

The California Biennial Report, also known as the Statement of Information, costs $20. This fee is required every two years.

Does LLC expire in California?

An LLC does not automatically expire. However, failure to file necessary reports and pay fees can lead to its dissolution.

Can a non-resident open an LLC in California?

Yes, a non-resident can open an LLC in California. You will need a registered agent with a physical address in the state.

Can I buy a house or car with my LLC in California?

Yes, you can buy a house or a car in the name of your LLC. This can provide liability protection and separate personal and business assets.

Can you have multiple businesses under one LLC in California?

Yes, you can have multiple businesses under one LLC in California. However, it’s best practice to keep operations and finances separate.

Is California an excellent state in which to form an LLC? Is it worth it?

California can be a good state for forming an LLC, especially for businesses operating in tech and entertainment. Consider your specific needs and costs before deciding.

Can one person form an LLC in California?

Yes, one person can form an LLC in California. This type of LLC is often called a single-member LLC. It provides liability protection for the individual.