How to Start an LLC in California

The first decision you will need to make in starting an LLC is creating the entity that will operate the business. That involves making decisions like picking a name, an agent, and establishing an operating agreement.

The state of California wants all business names to be different so you will need to pick a name that no one else is already using. You can start checking to see what names similar to your proposed business name are being used by going to the California Secretary of State’s website. 

The state has a free search of all the registered, expired and active, business names in California. You will need to search under both corporations and LLC categories to see if your name is taken. 

All you need to do is enter your proposed name in the search bar and click search. The search bar isn’t case-sensitive. Results will pop up within a few seconds.

Another search should be done on major search engines for domain names that feature your business name as well as looking on social media. Sometimes, people don’t follow all the rules and register with the state but will create a website, or at least buy the domain name. Others use social media to advertise a business they are trying to start. 

Looking into all these areas will fulfill your due diligence in making sure your proposed business name is unique from all others in the state.

Every business owner must have a registered or statutory agent listed on a state business registration. A registered agent is someone who can receive legal documents and letters on behalf of the business. 

A registered agent can be the business owner, a family member, a business partner, a friend, or an attorney as long as they meet the state requirements. 

You can hire a commercial registered agent to perform this duty as there are many who do this professionally as individuals or as part of a larger entity that offers many types of business services.

To be a registered agent in California, you must:

We recommend:

Visit ZenBusiness

Pros

• Solid customer support
• Long track-record of reliability
• Large company with lots of resources

Cons

• Hard to find refund and cancellation policy

Visit Northwest

Pros

• Industry experience
• Stellar customer reviews
• Personalized support
• Volume discounts

Cons

• Fewer add-on services than some competitors
• State fees charged separately (industry standard)

Visit Bizee

Pros

• Excellent value for money
• Quality services
• Good customer reviews
• No hidden charges
• Live chat support

Cons

• A lot of upsells in the signup process

This is the paperwork that is filed with the state listing all the pertinent information about the business. It is a legal document that is used for liability and court issues, as well as tax liability questions.

Information you’ll provide when filing Articles of Organization:

Filing fee

California doesn’t have a filing fee for those who file for Articles of Incorporation for an LLC online. There is a $70 filing fee for those filing an Articles of Incorporation Statement of Conversion for a California LLC. Out-of-state business owners can register their LLC to do business within California online for free.

California processing time

The state of California doesn’t have a range of processing time for either paper or online filings. Officials state the amount of time for processing depends on the documents filed, how they were filed, where they were filed and the time of year filed. 

Processing times will take longer for those filing at the end of either calendar or fiscal year. Online filings are faster and those who want to speed up processing times can order expedited service. Expedited services to process requests within 24 hours is $350 and those who want same day service will need to pay $750.

An operating agreement specifically created for your LLC is important because it takes precedence over any California laws that govern business or your industry. Any issue not specifically addressed in your operating agreement will by default fall under LLC state laws.

Since all state laws may not be suitable for your business, a detailed operating agreement needs to be in place addressing all aspects of the LLC.

An operating agreement will help your LLC in other ways. It proves the ownership of the business, reinforces the limited liability status, and prevents misunderstanding between those who own and operate the LLC.

An operating agreement should include: 

Running a business involves a lot of details and that starts with how you set up the foundation for your business in the beginning. Getting everything in order for federal taxes as well as state tax and liability rules will keep you legally protected.

An EIN is your federal employment identification number. You will need this for filing taxes, getting loans, hiring employees, and a number of other activities. Business owners apply for an EIN online through the IRS.

Not all businesses need an EIN. However, you do need an EIN, if your business:

It is always a good practice to keep separate bank accounts for personal and business use. Keeping money separate prevents problems and protects you if the IRS or the state revenue department ever audits you. It also keeps you out of legal trouble if any other LLC member accuses you of using company money for personal use.

It is also easier to manage business expenses and revenue if it’s in a separate checking account. It makes it easier to provide the required information when you pay taxes and file yearly tax forms too.

Businesses benefit from having both checking and savings accounts. Checking accounts are used for operational expenses and savings accounts are needed to save up for equipment or inventory you may need in the future, to help with cash flow, and to provide a backup account to prevent overdrawn checks and the bank fees associated with them. 

Another item a growing startup need is a credit card. Credit cards can be used to pay for inventory, equipment, or other business expenses during the month to accommodate cash flow. Some offer great incentives and rewards that help businesses too.

Almost all California companies will pay one of three types of taxes. They will either pay a corporate tax, the alternative minimum tax (AMT), or a franchise tax. Some businesses will pay all three. 

California has a flat corporate tax rate of 8.84% that applies to both LLCs and C corporations that report a profit and who elect to be treated as corporations for taxation. Those that have no profit pay a flat AMT of 6.65%.

The state of California requires all business owners to file an annual report or what the state calls a statement of information. This document outlines the basic information of your LLC and is used to make changes occurring over the past two years, as some businesses are allowed to file every other year. It is filed online at the Secretary of State’s website.

Every LLC must pay the yearly tax of $800 when they file their annual reports. This tax must be paid by all businesses registered with the state, even those who aren’t currently doing business. The only way to avoid the tax is to cancel your LLC registration with the state. 

Businesses have four months from the day they file for their LLC registration to pay their first-year annual tax. It must be paid by the 15th day of the fourth month.

Businesses need insurance to protect both the business and the business owner. The two primary types of insurance every business needs are liability and workman’s compensation insurance.

Liability insurance protects you and your business if a customer or vendor ever sues the business. This could happen because of a harmful product, an unsafe condition at your shop, or any number of other scenarios. California doesn’t require liability insurance for all businesses but the state doesn’t cap the amount someone can sue for either. That makes having liability insurance a proactive step to protecting your business.

Workman’s compensation insurance protects businesses that hire employees. It represents the business should an employee sue for an injury. California requires any who employs a worker, even just one worker, to have workman’s compensation insurance.

Beyond those two insurances, business owners should also consider property insurance for their business addresses. This will reimburse you should your store be destroyed by fire, flood, or other events. Your equipment and inventory should also be covered under your property insurance.

Additional resources to help you set up a business in California

Those who need more help to set up their business in California have many resources to guide them and answer questions.