How to Form an LLC in California

Any resident of California can form a domestic LLC (limited liability company) in the state of California under the Statute 17000-17005 in order to operate a business. There are a few things you need to have in place before you apply, such as the official company name and Articles for Organization, but the process is generally very straightforward.

Method 1

Method 1 of 3:

Deciding to Form an LLC

1
Research the need to form an LLC. A Sole Proprietorship might be all you need if you are starting a small business and you are the only employee. A Partnership agreement might be more appropriate if you are starting your business with a partner.^{[1]XTrustworthy SourceU.S. Small Business AdministrationU.S. government agency focused on supporting small businessesGo to source}^{[2]XTrustworthy SourceU.S. Small Business AdministrationU.S. government agency focused on supporting small businessesGo to source}
- A sole proprietorship is owned by one person, and there is no legal separation between the individual and the business. All profits, losses, debts and deeds of the business would be your responsibility. It is easy to form without needing state registration and you have complete control over the business.^{[3]XTrustworthy SourceU.S. Small Business AdministrationU.S. government agency focused on supporting small businessesGo to source}
- In a partnership, each individual partner is liable for his or her share of profits, losses, or liabilities. However each partner is generally liable for the full debts of the partnership in the event one partner does not pay his or her share of a debt.^{[4]XTrustworthy SourceU.S. Small Business AdministrationU.S. government agency focused on supporting small businessesGo to source}
Corporations file taxes separately from their owners. You might be able to take advantage of a lower corporate tax rate, but it may also lead to double taxation (which occurs when your corporation's income is taxed, followed by your income from the corporation being taxed when the company pays a dividend or makes a distribution). Incorporating is generally not appropriate for smaller businesses.
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3
Consider the benefits of a Limited Liability Company (LLC). An LLC prevents other businesses from using your business name, protects you from personal liability, establishes credibility with customers, ensures the business continues if the owner dies, and provides tax savings. You also do not have to file a separate tax return for the company.^{[5]XTrustworthy SourceU.S. Small Business AdministrationU.S. government agency focused on supporting small businessesGo to source}
- A disadvantage of an LLC is you can't pay yourself a salary and avoid paying FICA, unemployment insurance and withholding as you would in a corporation. You also cannot deduct your salary as a business expense.
4
Meet with an attorney and/or a Certified Public Accountant. Before you file to be come an LLC, it is always a good idea to meet with an attorney or CPA who specializes in starting new businesses. He or she can review your application and your Articles of Organization before you send them in, and explain any tax benefits and recordkeeping requirements.
- Note that California prevents professionals (doctors, accountants, etc.) from operating an LLC. California also only allows limited liability partnerships (LLPs) to lawyers, architects and accountants.^{[6]XResearch source}
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Method 2

Method 2 of 3:

Forming Your Business Organization

1
Choose a name for your LLC. You will have to operate your business under an official name. Choose a name that best fits your company and make sure that at the end of your name you have the words or abbreviations: “Limited Liability Company,” or its abbreviations “LLC” or “L.L.C.,” “Limited Company,” or its abbreviations “LC” or “L.C.,” “Ltd. Liability Company,” “Ltd. Liability Co.,” or “Limited Liability Co.”
- To make sure that your name has not been taken, search the California Name Database.
The official application to form an LLC in California is the Articles of Organization. You must completely fill in this form.
3
Write your Articles of Organization. You will need to send your completed Articles of Organization to the California Secretary of State along with a check for $70.The mailing address is Secretary of State Statement of Information Unit P.O. Box 944230 Sacramento, CA 94244-2300.
- The Articles of Organization include the following:
  - The name of one member.
  - What type of property will this member contribute? (cash, tangible or intellectual property)
  - What percent ownership will this member have?
  - Will the LLC elect corporate tax treatment from the IRS?
  - How will decisions be made?
  - How often will the LLC distribute profits to the members?
  - What is the LLC's fiscal year?
Consider structuring the Articles of Organization where the members have proportional management rights, allocation of profits and capital contribution. For example, one member could have 80 percent management rights, with an obligation to only contribute 10 percent of start up capital. Or you could have 4 or more members each having equal voting rights, with one member receiving a 70 percent of the profits.
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Method 3

Method 3 of 3:

Completing the Final Steps

1
File the Statement of Information. Within 90 days of receiving your official LLC from the State of California, you will need to submit a Statement of Information to the Secretary of State along with a check for $20. The Statement of Information asks for the following information:^{[7]XResearch source}
- The name of the LLC and the company number issued by the California Secretary of State.
- The business address and the names and addresses of the chief executive officer and managers.
- A general description of the type of business based on business activities.
- Name of the agent (if any) designated to accept service of process if the company is sued.
- Failure to submit the Statement of Information will incur a $250 fine.
While this is not required by the state, it is a good idea to put in writing an official operating agreement. This will describe how decisions will be made, what happens if a member of the LLC leaves the business, how profits will be shared, etc.
If you plan to set up a separate bank account for the LLC you will need an employee identification number from the IRS. The form can be found at Apply for a EIN Number.
4
Determine if there are any special licenses or permits required. Many cities and counties in California require a license to do business, and permits may be necessary for parking and building occupancy. If you own a building there will be fire safety regulations to follow.
- Business license fees may be charged at a flat rate, percentage of gross sales, or a combination of the two.
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