Interested in starting a limited liability company (LLC) in California but feeling a little overwhelmed? You’ve come to the right place! In this article, we’re walking you through all the steps you need to take to create and form an LLC in California, all the way from naming your LLC to filling out paperwork to setting up accounting best practices. Let’s get into it!
How to start an LLC in California
The LLC business structure is a popular one for small business owners because it combines the best parts of a corporation and a sole proprietorship, including tax advantages and personal protection from liabilities.
Here’s a quick summary of the eight main steps you need to take to start a limited liability company:
- Name your California LLC
- Select a registered agent for your LLC in California
- File articles of organization for your California LLC
- Draft a California LLC operating agreement
- Obtain an EIN (employer identification number) for your California LLC
- Obtain a California business license
- Comply with California tax requirements and regulatory requirements
- Establish accounting best practices
1) Name your California LLC
The first step to starting an LLC in California is deciding on a catchy, unique name for your business and then officially registering it with the state.
Some legal caveats: your LLC must contain “LLC” in its name, or a variation of that (such as Limited Liability Company, L.L.C, or Ltd. and Co.) Your business’s name also can’t contain the words bank, trust, corporation, insurer, FBI, Treasury, State Department, or any words that could mislead the public.
It's important to check the California business name directory site to ensure your chosen name hasn’t already been claimed by another business. Your name needs to be unique in order to register it!
California LLC name considerations
There are some more important considerations to take into account before registering your business name.
Website domain and URL availability
Even though you might not need a live website right away, you should check if the URL you want to use is available. Nothing is worse than putting all that hard work into registering the perfect business name only to find out the website name is taken!
Even if you’re not ready to build out your website yet, you can still purchase the website domain now to prevent anyone else from snatching it up.
California LLC name reservations
On that note, you can also reserve your business name with the state of California. If you aren’t quite ready to officially register your business name, but want to ensure someone else doesn’t claim it in the meantime, this is a good option.
Business names can be reserved in California for up to 60 days for a small fee of $10 through the California Secretary of State’s office.
2) Select a registered agent for your LLC in California
In order to form an LLC in California, you’ll need a registered agent (also called an “agent for service of process”), which is a person or entity who accepts legal documents on behalf of your LLC, along with tax forms and other government communications.
You or an employee can be your own registered agent as long as you have an address in California and are available to accept documents during typical business hours. However, the LLC itself cannot be its own registered agent.
If you want to take these duties off your plate, you can hire a person or company to be your registered agent. The California Secretary of State has its own handy database of companies that offer registered agent services.
3) File articles of organization for your California LLC
Time for one of our most important steps: filing your articles of organization with the California Secretary of State to officially form it!
All you need to do is fill out an online form. Here’s the information you’ll need on hand:
- Your LLC’s name
- Your business address
- Your business purpose
- The name and address of your registered agent
- The members and managers of your LLC, and how it will be managed
You can file your articles of organization with Form LLC-1 and submit it online, by mail, or in person for $70. Then all you need to do is wait for your articles of organization to get approved by the secretary of state. Once your articles are approved, the state will send you a certificate validating that your LLC is officially official!
4) Draft a California LLC operating agreement
Unlike other states, operating agreements are mandatory in California. Even if they weren’t, they are super helpful to draft up since they clarify your business's operating functions and lay out how members, managers, and other employees of your LLC are managed.
You don’t need to file your operating agreement with the state—it’s meant for you to keep on hand for your own reference. It helps clarify the duties and rights of you and any other LLC members, which can help settle any conflicts that may arise. Even though your operating agreement is an internal document, you may need to show it to third parties, like banks, or California agencies, so take good care of it.
Here’s what we recommend including in your operating agreement:
- The purpose of your LLC
- The names and addresses of members and/or managers
- The duties of each member or manager within the business
- How much authority each member has, including their ownership stake, voting rights, and profit share
- How new members and managers are elected
- A meeting schedule
- How voting and decision making works
- Terms of dissolution
5) Obtain an EIN (Employer Identification Number) for your California LLC
Now that you’ve received your certificate from the state, you can now request an Employer Identification Number (EIN), which is a unique number assigned by the Internal Revenue Service (IRS) to identify your business. Think of it as a SSN, but for a business.
Getting an EIN is mandatory if your LLC has more than one member or employees. Regardless, we still recommend requesting an EIN! An EIN opens up a world of opportunities: it lets you open a business bank account, get loans, establish credit, hire employees, and apply for business licenses.
6) File a statement of information
One more piece of housekeeping to take care of: filing a statement of information (Form LLC-12) with the secretary of state within 90 days of forming your LLC. Here’s the information you’ll need to have on hand:
- The name and address of your LLC
- Your business operations
- The California Secretary of State’s file number
- The name and address of your registered agent
- The name and address of your LLC’s managers and members
BTW, a statement of information is required to be re-submitted every two years, and is sometimes referred to as the “Biennial Report.” You can file online, by mail, or in-person. It costs $20 every year.
7) Pay the annual franchise tax for your California LLC
To operate a business in California, LLCs that are taxed as partnerships or sole proprietorships are required to pay a “franchise tax,” which is basically payment for the privilege of doing business in California.
The amount you have to pay depends on your gross income, and the minimum amount of franchise tax you’ll have to pay is $800. From January 1, 2021 to December 31, 2023, LLCs don’t need to pay the minimum $800 franchise tax for their first year of business.
LLCs that elect to be taxed as C corporations owe corporate tax instead, which is 8.84% in California. If your LLC isn’t making a profit yet, you’ll need to pay $800 in franchise tax instead of the corporate tax, along with something called the alternative minimum tax (AMT), which is 6.65%.
8) Obtain a business license for your LLC in California (if necessary)
Depending on your business type and industry, you may also need to get licenses in order to operate in California. If you’re selling goods, you’ll need a seller’s permit from the Board of Equalization (BOE). You’ll probably also need a general business license from the specific California city you’re doing business in.
For information on industry-specific licenses, you can do a quick search on the California Governor’s Office of Business and Economic Development website, and check out the US Small Business Administration (SBA) guide for licenses on the federal-level.
You can also check out the California Department of Tax and Fee Administration or get in touch with your local government for more information.
Further California LLC considerations
Beyond the eight steps we just covered, there are more “i”s to dot and “t”s to cross once your LLC is established. The fun just never ends, does it? 😉
Comply with California employer obligations
Once your business is off the ground and you’re ready to hire employees, you need to ensure they are legally able to work in the US and report any new hires to the state.
The minimum wage in California is $15.50/hour, and your employees need to be paid a minimum of two times a month. Hot tip: Wave’s payroll feature makes it easy to accurately pay employees, contractors, and yourself, even if you’re totally new to payroll.
Obtain necessary permits
As with licenses, the permits you need will depend on your industry. For example, if you own a restaurant, you’ll probably need a health permit.
If you’re setting up a physical location for your business, don’t forget to consider zoning regulations. Zoning laws let you know what type of businesses are allowed in certain areas (if at all!). Rather than trying to get a waiver to set up shop in an area that hasn’t been approved, it’s easier to find a spot that already allows commercial activities.
Keep in mind, there are still zoning rules and regulations to follow even if you’re running your business out of your home, so be sure to consult the terms of your lease or homeowners association rules!
Establish accounting best practices
Understanding accounting and bookkeeping best practices is key to tracking how your business is performing, making smart spending decisions, and being prepared for tax time.
Here are some accounting best practices to follow:
- Open up a business bank account to help you keep your personal finances and your business finances separate
- Get a business credit card, which will make bookkeeping much easier and help build your credit score
Hire an accounting coach, or consider a small business accounting software like Wave to help manage your money. Wave provides easy-to-use software for small business owners that helps you stay on top of bookkeeping and makes tax time less stressful. We recommend taking care of your accounting in one place, like Wave, because it minimizes the chances of making mistakes.
Are you ready to start an LLC in California today?
Aaand there you have it! Everything you need to know about how to start a limited liability company in California. We covered a lot of ground today, so here’s a quick recap:
- Make sure your business name (and website domain!) are available
- Get a registered agent
- File articles of organization
- Draft an operating agreement
- Obtain an EIN
- Apply for any necessary business licenses and permits
- Comply with California business tax requirements
- Establish accounting best practices
And remember, Wave is with you every step of the way! Whether you need an accounting feature to help you make smart money decisions, an easy way to pay yourself or your employees, or a friendly bookkeeping coach to teach you how to do small business bookkeeping, Wave has your back.
The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.