California is known for its movie stars and beautiful beaches, but it is also a haven for enterprises of all sorts. The state is the largest contributor to the overall gross domestic product of the United States. So, if you’re forming a California limited liability business (LLC), congratulations: As you begin your business adventure, you will be in excellent company. We created this helpful free guide to help you start an LLC in California, and file it with the Secretary of State and the tax guideline.
What is an LLC?
An LLC, or limited liability company, is a legal business form in your state. As a private endeavor, anyone suing an LLC cannot lawfully pursue the business owner’s personal assets. Because of the way they are constituted, LLCs provide the same tax benefits as sole proprietorships or partnerships.
Before You Get Started
Congratulations on your decision to form your California LLC, but before you start the formalities of filing papers with the Secretary of State office, it is a good idea to conduct some preliminary study and business planning to ensure your success:
- Conduct market research. Examine similar firms in your area to develop a good strategy for beating your competition.
- Choose a strategy. Set some goals for when your firm will be profitable and devise a strategy to get there.
- Develop a business plan. Put everything into action with a business plan that includes information about market research, funding, marketing strategy, and other critical aspects that will aid the development of your new company.
How to Start an LLC in California for Free
Yes, you read it correctly: you may start an LLC in California for free. California has no filing fees for LLC articles of organization from July 1, 2022, to June 30, 2023. The second statement of information is $20 to file, and you can start an LLC in California for free. Let’s go into the specifics of how you can accomplish this:
#1. Choose a Name for Your California LLC
The initial step is the most enjoyable: Give your company a name. California has a few requirements for your business name:
- Your name must be distinct from other active businesses in California
- It must include the phrase “limited liability company” or “LLC.” The words “limited” and “company” may be abbreviated to “Ltd.” and “Co.”
- It can’t include words that would confuse your business with a government entity, such as “treasury” or “state department”
While naming your LLC, run a California company name check on the California Secretary of State website to ensure that your name is available. If your name is already in use, you must choose another. Additionally, check California’s full list of naming requirements to assist you in selecting an appropriate name and distinguishing similar California LLC names.
LLC Name Reservation:
If you’ve decided on an available name but aren’t yet ready to file the rest of your paperwork, you can reserve your California LLC name for up to 60 days using the state’s online business filing system. That way, you can continue planning without fear of someone else stealing your identity.
Trade Name and DBA Registration:
Some companies register as a formal LLC and conduct business under a “trade name” or “DBA” (“DBA” stands for “doing business as”). This is simply an alias for your company that does not require the LLC classification. You can use the same California LLC lookup option on the CA Secretary of State website to find out what other DBAs are in use.
#2. Hire a Registered Agent
To start, your California LLC requires a registered agent to receive any legal or government paperwork on your behalf, which you can employ for free or for a fee. While California allows you or another LLC member to serve as your LLC’s registered agent, anyone doing so must be at least 18 years old. They must also have a physical address in the state.
You should be aware that the name and address of whoever you select as your registered agent will be made public. This frequently raises privacy problems. Instead, many LLCs use a registered agent service. The cost is typically between $50 to $150 every year, with some businesses offering the first year free if you use their business creation services. Do your homework before employing someone to ensure you get your money’s worth.
#3. File Your California LLC Paperwork
The Articles of Organization is a document that formalizes your LLC by outlining fundamental facts about it. Articles of Organization can be submitted in California using Form LLC-1.
To properly register your California LLC, prepare Articles of Organization and file them with the California Secretary of State. Though it may appear to be a large task, it merely entails completing and submitting a pretty easy online form. You can also send it via postal mail.
You’ll normally need the following information to prepare your articles:
- Your LLC name and address
- The purpose of the LLC.
- The name and address of your registered agent.
- Management structure: Will its members or managers manage the LLC?
- The person forming the LLC is required to sign the Articles.
The secretary of state will review your Articles of Incorporation after you file them. The LLC becomes a legitimate business entity once the articles are authorized. In California, you can apply by normal mail, online, or in person.
#4. Create an operating agreement
An operating agreement is a document that specifies how your LLC will operate.
An operating agreement is required for an LLC in California, although it is not required to be filed. It must be easily accessible. A formal operating agreement is beneficial for a variety of reasons, including resolving disagreements over financial arrangements and other potential litigation. Without an agreement, the courts determine decisions based on state law, not necessarily what is best for the LLC and its members.
#5. Obtain Tax Identification Numbers
Paying taxes to the state and federal governments is a necessary part of doing business. For this reason, you’ll almost certainly require both a state and a federal tax identification number.
California Business Entity Number:
When the state accepts your LLC articles of incorporation, you will be assigned a 12-digit Secretary of State Business Entity number. This number will be used to validate your company’s identity with the state of California and to meet annual filing requirements.
Federal Employer Identification Number (EIN):
If you have more than one member or intend to hire employees, you will also require a federal EIN. An EIN is essentially a business’s Social Security number. This number is used to conduct payroll, pay employment taxes, and engage in other business operations for your LLC, such as opening a business bank account or obtaining a business credit card.
Even if you have a single-member LLC with no workers, you should still use an EIN. Otherwise, you may be requested for your personal Social Security number for business purposes, putting you in danger of identity theft.
After You File an LLC in California
Following the completion of the LLC application procedure, you must confirm that your business complies with California’s tax requirements. All LLCs in California must pay LLC taxes if they are organized, registered, or conduct business in the state and have not decided to be taxed as a corporation. LLCs that are taxed as corporations must instead follow the corporate tax standards of California. Review our FAQ at the bottom of this post for more information on C-corp vs. LLC taxation.
Step #1. LLC Tax Requirements
When an LLC fails to file its tax return on time and fails to pay the full amount owing on time, California imposes a penalty. Keep track of filing dates and how much you owe to avoid paying more than necessary.
#1. The Annual Tax
In addition to annual state taxes, the California Franchise Tax Board mandates every California LLC to pay an annual franchise tax of $800, with some exceptions. You must pay your first-year annual tax by the 15th day of the fourth month after your filing date. For instance, if you form your LLC on June 1, your first LLC tax payment is due on September 15. An LLC formed or registered in 2022 or 2023, on the other hand, is exempt from the yearly tax for the first year. Use Form 3522, LLC Tax Voucher, to file your annual tax.
#2. Sales and Use Tax
What exactly is LLC Sales and Use Tax? An LLC that sells certain goods or services must collect and remit sales and/or use taxes. More information about these taxes, as well as how to obtain a seller’s permit and other taxes and fees, can be found on the website of the California Department of Tax and Fee Administration.
#3. Employer Tax
If your LLC employs employees, you must also pay employer taxes. You’ll need to withhold and pay employee income taxes, as well as state unemployment insurance taxes, for example. For further information, contact the California Employment Development Department.
#4. Annual California LLC Fee
If your LLC generates more than $250,000 in revenue, you must pay an extra fee by the 15th day of the sixth month of the current tax year.
Step #2. Business Licenses and Permits
Depending on the nature of your California LLC’s operation, you may need to get state and municipal business licenses or permits. Visit the CalGold website to learn more about statewide LLC regulations.
Determine the criteria of the local and county governments where your LLC is located. Some LLC services offer to study what LLC licenses you require and present you with a report, as well as assist you with applying for LLC licensure.
Step #3. Submit Form LLC-12 (Statement of Information)
The Secretary of State requires you to complete and file Form LLC-12 (Statement of Information) within 90 days of incorporating an LLC in California. A filing fee of $20 is required. After the initial filing, you must also complete and file a Form LLC-12 every two years.
Step #4. Get an Employer Identification Number (EIN)
While single-member LLCs with no workers are not needed to have one, obtaining an EIN for your LLC is usually a good idea even if it is not required. When you first start, you can obtain a free EIN number for your California LLC by visiting the IRS website.
How Much Does It Cost to Start an LLC in California?
California has no filing fees for LLC articles of organization from July 1, 2022, to June 30, 2023. The following statement of information is $20 to file. Depending on whether you file on your own or use an online LLC provider or an attorney to assist you, you can spend as little or as much as you like to form an LLC.
How Do I Qualify for an LLC in California?
In order to qualify, you must file your Organization Articles to the State Secretary of California, which costs $70 online.
What Documents Do I Need to Open LLC in California?
You will require the following documents:
- Formation – Articles of Organization. Form LLC-1 (PDF) No Fee.
- Statement of Information: Due within 90 days of initial registration and every two years thereafter.
- Termination. Certificate of Dissolution. Certificate of Cancellation.
What Is the Fastest Way to Start an LLC in California?
The quickest approach to get your California LLC up and running is to file your paperwork online. Send your application by mail. Download and complete Form LLC-1 (Articles of Organization) to file by mail.
Can I File an LLC Myself in California?
To form an LLC in California, go to bizfileOnline.sos.ca.gov, login, click Register a Business under the Business Entities Tile, Articles of Organization – CA LLC, and complete and submit the forms.
Do I Need a Lawyer to Form an LLC in California?
To incorporate an LLC, there is no legal obligation to retain an attorney. Most states permit the formation of an LLC by registering the company entity on the website of your secretary of state as well as with the Internal Revenue Service (IRS). LLCs outperform sole proprietorships and general partnerships.
Conclusion
When determining whether or not to form an LLC, there are numerous aspects to consider. Personal liability is an important consideration. In most cases, LLC members are not individually liable for the venture’s debts and obligations, whereas sole proprietorship owners are personally liable for all corporate debts and liabilities.
Because of the limited personal liability protection they provide, LLCs are excellent business organizations for enterprises operating in the state.
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