As a small business owner, setting up your business as a limited liability company (LLC) is a great way to protect yourself against business risk as an LLC distinguishes between your personal assets and business. Also, since it is more cost-effective than forming a corporation, an LLC business structure is widely prevalent amongst small business owners and individuals who want to protect their assets in the United States.
In order to fully unravel the benefits of starting an LLC, you must first understand how to form an LLC organization in California compliantly, because skipping a process or submitting false documents can result in serious legal consequences in the future.
If you want to start an LLC in California but don't know what steps to take, this article will guide you through how to form an LLC in California — from choosing a name, filing your Articles of Organization, and to the post-LLC registration.
A limited liability company is a business structure that combines the features of a corporation and those of a sole proprietorship. For example, business owners registering their businesses as LLCs get liability protection when repaying the company's debts or liabilities (similar to a corporation). However, an LLC is a pass-through entity – the business itself doesn’t pay income tax, similar to a sole proprietorship.
Businesses that want to render their services in California must register with the Secretary of State. This process involves appointing a registered California agent, obtaining a certificate of good standing, and applying for the California foreign LLC registration. Upon completing the process, you become legally authorized to operate as an LLC in California.
Setting up your business as a limited liability company in California is easy if you know what steps to follow. Below, we cover the three major phases and any associated steps needed to complete the registration successfully.
Before you apply for your LLC’s Articles of Organization, there are key things you must do.
1. Choose your LLC name.
The business entity name is a piece of important information required in filing the Article of organization and other documents. When choosing a name for your California LLC, you must ensure that it satisfies all necessary California business entity naming requirements.
That is to say, it is unique, not deceptive, and does not include words used in the name of government agencies like - the FBI, Gov, Etc.
Business names must include words such as “Limited liability company, LLC, or L.L.C.”
To use words on the restricted words list like "Banker, Doctor, etc.", you will have to file extra documentation and licenses.
2. Check for LLC name availability:
After choosing a name or name for your business, you should check if the name is available in California. Check for name availability here.
Alternatively, you can check URL availability to ensure your business name is available. This way, you have everything locked down for taking your business online.
Check for URL availability here.
If you don't want to register your business entity immediately, you can reserve your business name for up to 60 days. To do this, you are required to pay a $10 fee and file specific paperwork to mark the name as unavailable to other business owners.
3. Appoint a California registered agent
As a small business owner who wants to form a California LLC, you must designate a registered agent by law. A registered agent serves as a middleman between your LLC and the State to receive essential documents on your behalf. These documents may include service of process notices, government correspondence, and litigation notices.
You can take up the role of the designated agent or service of process officer or appoint a third party such as a full-time resident of California, an authorized agency, or a Company staff.
It's required by Californian law for designated agents to have a physical California address, whether it's an agency or an individual.
Depending on your business's specifics, decide if you should create a member-managed LLC or a manager-managed LLC. A member-managed LLC is a business where the owners (called “members”) are the management authority. Each member can have equal control, or the level of authority might differ depending on their stake in the business.
If your business is small and you want to keep 100% control of the business, then a member-managed LLC is a better choice.
Manager-managed LLC on the other hand involves selecting managers to handle everyday business decisions. The stakeholders can select a member of that LLC to serve as the manager or member of the appointed management team. Managers that are not a member of the LLC are called professional managers and they can make certain decisions without waiting for approval from all members. However, the members make certain critical decisions, including dissolving the company. For instance, if the members depart to sell or transfer ownership of the company, the manager cannot make such decisions. The stakeholders deliberate and decide on how best to proceed in such cases.
The articles of organization (Form LLC-1) is one of the legal documents used to establish a limited liability company in California. It contains information such as the business name, the business’s physical or virtual address, the name of the designated registered agent, and the management structure.
If you do not have a physical office, you can read about virtual addresses and whether it's a good fit for registering your business entity.
You can file the Form LLC-1 online or Physically at the Secretary of State's office for a fee of $70. However, if you need the documents filed immediately, this would be an additional fee of $15.
It takes about 5 working days for your LLC articles of organization to be processed.
Congratulations, your LLC is live. What next?
1. File initial statement of information
Registered Limited Liability Companies in California are required to file a statement of information within 90 days of filing the Article of organization. It contains the critical business information like
You can file the Form LLC-12 for $20 online or have it hand-delivered to the Secretary of State's office. After the initial filing, you are expected to file your statement of information every 2 years.
2. Get your California LLC EIN
The Employer identification number often referred to as the social security number for business, is used by the Internal Revenue Service for tax identification purposes. All registered LLCs in California are expected to apply for EIN by submitting the necessary documents to the Internal Revenue Service (IRS) for processing. The EIN is also an important detail needed to create your LLC's business account and hire staff.
Setting up your business as an LLC is a great way to protect your assets against business risk. However, your LLC can be a ticking time bomb waiting to explode without the right documentation and process. As a business owner, following the steps to set up your business as an LLC will ensure you enjoy all the benefits it offers without spending years in court for filing the wrong document.
At Stable, we provide virtual business addresses and mailboxes for LLCs, corporations, and more. Our permanent business addresses can be used for your LLC formation documents, banks, the IRS, etc., and we’ll also digitize all the business mail you receive at your address so that you can access it from anywhere in the world.
If you’re interested in learning more or have additional questions about how to create an LLC — feel free to reach out to us at hello@useStable.com
Get started with Stable here if you’d like a virtual business address + mailbox in less than 3 minutes.
Disclaimer: Stable is not a legal or accounting firm, therefore we cannot provide legal or tax advice. You should consult legal and tax professionals for advice on how to meet ongoing obligations that apply to you and your company.