Form an LLC in California

LLC stands for “limited liability company.” An LLC is a business entity that is legally separate from its owners. The owners of an LLC are called “members.”

An LLC offers some legal protections to business owners, shielding their personal assets from being taken to settle debts and legal claims against the business. Another advantage is tax flexibility. LLCs are by default pass-through tax entities, with all profit and loss flowing through to the owners’ personal tax returns. However, eligible LLCs may be taxed as S Corporations to help minimize business owners’ Social Security and Medicare tax obligations

A potential drawback of the LLC is that pass-through taxation may create an unfavorable financial situation for some business owners. Because all profit and loss are taxed at the owners’ individual tax rates, the LLC structure could cost owners more in taxes — depending on their tax bracket. In some cases, the corporate tax rate (at the federal or state level) might be less than the individuals’ tax rates. It’s important for entrepreneurs to talk with a tax professional for advice on how setting up an LLC will affect their tax obligations.

Individuals, other LLCs, corporations, or foreign entities may own a limited liability company. Note that some states also allow the formation of variations on the LLC, such as PLLC (professional liability company), and those may come with restrictions on who may own them.

There are no requirements to have an attorney complete LLC formation paperwork. CorpNet saves our clients money on legal costs because we can prepare and submit your LLC forms for less than many lawyers charge for providing those services. However, entrepreneurs can greatly benefit from consulting an attorney when deciding which business entity type will be best for their business.

That will depend on several factors, such as how many owners the business has and who will manage day-to-day operations. Also, the eligibility requirements for certain types of LLCs (such as professional liability companies, a.k.a. PLLCs) may limit which kind of LLC entrepreneurs may form. That’s why it’s essential to ask for professional advice on the legal and tax aspects before deciding on a business structure.

No restrictions exist on the number of LLCs that eligible individuals or companies may set up and operate. Know that how entrepreneurs structure their multiple LLCs has legal and financial impacts, so it’s helpful to research the options carefully before forming the entities.

A single-member LLC must have a sole owner or be a married couple that is collectively considered the owner. An LLC with multiple owners is considered a multi-member LLC.

LLCs may have an unlimited number of members. The exception is if an LLC elects to be considered an S Corporation for tax purposes; then, it may have no more than 100 members.

No. An LLC is not required to have a board of directors. However, LLC members may choose to have one if they adopt that method of management in the LLC operating agreement.

Typically, an LLC that conducts business in states beyond its home state must apply for foreign qualification in those additional states. The rules for what “conducting business” means vary depending on the state. In general, the following activities require an LLC to foreign qualify:

• Having a physical presence, such as an office, retail store, or warehouse in the state.
• Having a distributor or sales representative in the state who sells the LLC’s products and services there.
• Owning property (e.g., a vehicle fleet or real estate) in the state
• Reaching a level of income or sales in the state that defines the LLC as having economic nexus there.

If an LLC will use its registered name to do business, it does not have to file that name as a DBA (doing business as). However, if the LLC’s owners want to conduct business under a different name or use another name for a particular product line or another purpose, they will have to file a DBA to get the state’s permission to use the fictitious name. For example, suppose an entrepreneur forms an LLC registered as “Josephine’s Creperie.” If Josephine wants to offer catering services under a different name, say “Josephine’s Event Catering,” she would need to file a DBA for that name.

• You can search for name availability in the California Secretary of State’s Business Search tool online, or CorpNet can search and reserve the business name for you.
• The name must be unique and not easily confused with any other business in California.
• You can reserve a name for up to 60 days by filing a Name Reservations request form with the Secretary of State.

• The fee to submit the Articles of Organization in California is $70.
• The fee to file the Statement of Information is $20.
• You must also pay $800 to the CA Franchise Tax Board.

• LLCs need to fill out the form for business name registration if they want to temporarily hold the name while they file for LLC status with the Secretary of State.
• The LLC application requires you to have Articles of Organization.
• LLCs must also complete an Initial LLC Statement of Information (within 90 days of registration) and a Periodic LLC Statement of Information (every two years).
• If there are any changes, the company must submit an Updated LLC Statement of Information between filing periods (no fee).

• Yes, you can form an LLC through the California Secretary of State website.
• You can also form an LLC online through CorpNet.

Yes. LLCs must file Articles of Organization in California during the application process.

LLCs do not need an Operating Agreement in California, although it is highly advisable to have one.

An Operating Agreement is a document that states the rights and obligations of the LLC’s members and the distribution of income. All members must sign the Operating Agreement for it to be considered effective and valid.

No. An LLC in California must end with one of the following identifiers: LLC, L.L.C., Limited Liability Co., Limited Liability Company, Ltd. Liability Company. The name cannot include words related to a government agency or other confusing words such as Bank, Attorney, University, Trust, Trustee, Incorporated, Inc., Corporation, or Corp.

A complete list of California’s naming rules can be found in California’s Code of Regulations.

Yes and no. A federal Tax ID number or Employer Identification Number (EIN) is not required if you operate an LLC with no employees (you can use your Social Security number as a Tax ID). All other LLCs require an EIN.

Yes. You must name a registered agent as part of the LLC registration process. A registered agent, sometimes referred to as a resident agent or an agent for service of process, is a person or company officially recognized by the state who resides within the state of incorporation and is designated by the corporation or LLC to accept service of process on behalf of the company. It can be an individual or another business entity with a physical location in the state of incorporation.

You can name an individual (yourself or someone else) as your registered agent or an official California Registered Corporate Agent, such as CorpNet.

Yes, ongoing reporting is required. California LLCs must file a Statement of Information every two years. You can have service companies like CorpNet file annual reports for you.

LLCs must pay the $800 franchise fee every year in California.

Standard processing takes 20-30 business days and express processing takes 10-15 business days.

CorpNet can help you set you your California LLC:

• Cost for the Standard complete package with initial and annual report: $531
• Cost for the Express complete package with initial and annual report: $651

Typically, businesses are required to have specific licenses and permits at the county or city level. Required licenses, fees, and permits vary by location.

Every LLC doing business in or organized in California must pay an annual tax of $800. In addition, California is an income tax state, so employers are required to withhold income tax and pay their portion of payroll and unemployment taxes for employees. Learn more about setting up California payroll taxes.

• California has a state sales tax. The statewide tax rate is 7.25%.
• In most counties and cities in California, local jurisdictions have added district taxes that increase the tax owed by a seller.
• Retail sales of tangible items in California are mostly subject to sales tax, such as furniture, giftware, toys, antiques, and clothing.
• Your LLC must apply for a seller’s permit in California and pay the state’s sales tax to the California Department of Tax and Fee Administration (CDTFA).