If you are keen on forming an LLC in California this is your step-by-step guide to getting through the process and making the best choices along the way. TRUiC has an extensive guide on how to set up your own LLC in California that includes a detailed account of the process, what paperwork is needed by the state of California, what you need to avoid and how to find a suitable registered agent or formation service to help you with your LLC formation. You can read more about how to form an LLC in California on their website.
However, before you delve deeper into the TRUiC business guide on how to form an LLC in California you might find the following quick to follow 6-step guide on LLC formation in California helpful.
6-Step guide to forming your California LLC
- Choose a Name for your LLC : every state has their own set of rules and you must adhere to these guidelines, you should also keep in mind that your name needs to have some form of LLC in it. Search on your Secretary of State’s website and make sure that your LLCs name is not taken, avoiding any names that have similarities to your own in order to make sure that your business will not be confused with any other business leading to misunderstandings which can be misleading.
- Appoint a Registered Agent – you can become your own registered agent or you can appoint a professional service to do it for you. You need a registered agent to keep you compliant with the state of California by helping you file the necessary annual reports to keep your LLC active.
- File the Articles of Organization with the secretary of state – the cost is $70 and can be done online, by mail or in person. You need to state if your LLC will be member managed which is appropriate for smaller companies or if your LLC will be manager managed where not everyone is involved in the day to day operations and is more suitable for larger companies
- File an initial statement of information – a form LLC -12 is required to be filed with the State of California within 90 days of forming your LLC
- Create an Operating Agreement – this is important to establish ownership rules and members roles, how the members vote, which members support the LLC how profits are shared throughout the LLC and how it may be dissolved. It does not need to be filed with the state and is used for internal reasons. However, it needs to be regularly updated whenever there are any changes in the LLCs structure to keep the LLCs procedures well defined and to help clarify any disputes or grey areas that might arise in the future.
- Obtain an EIN –an employer identification number is free of charge and can be obtained online or by mail. This is how the IRS tracks your company, it is basically a social security number for your LLC. It is an important aspect in your LLC formation process as it allows the business to legally hire employees and open a business banking account.
Finally, there is an annual franchise tax you should be aware of when forming your LLC. It is $ 800 when your LLC has an annual revenue of less than $250k and a fee of more than $800 if annual revenue is higher than 250k.
And that is how you form an LLC in California, the process is quite direct and simple compared to other business entities that offer personal liability protection such as corporations that have complex formation and management costs. LLCs also offer great tax advantages as they are not subject to double taxation and the LLCs members are only taxed once for the LLCs profits in their personal tax returns.