How to Form an LLC in California: A Step-by-Step Guide

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Now that you’ve settled on your business idea and chosen an an LLC as your business type, it’s time to make it all official.

Forming an LLC in California is your next step, and with the help of a business lawyer, you’ll complete the process in no time.

Here is how to form an LLC in California:

  1. Select a Name for Your LLC
  2. Select a Registered Agent
  3. Have a Business Lawyer Prepare Your Articles of Organization
  4. Have a Business Lawyer Draft Your LLC Operating Agreement California
  5. Get an Employer Identification Number (EIN) from the IRS
  6. Open a Bank Account for the LLC
  7. Have Members Daft an Investment Representation Letter
  8. Prepare and File Form LLC-12 Statement of Information
  9. Pay the Annual $800 Fee to the California Franchise Tax Board
  10. Determine the Tax Status for the LLC
  11. Apply for Any Necessary Permits and Licenses

When you’re ready to start the process of forming your California LLC, contact me at sam@mollaeilaw.com

With that being said, let's get started...

 

Step 1: Select a Name for Your LLC

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Now that you’ve asked the question how to form an LLC in California, you can think about naming your LLC as the first step for forming it.

A good idea to begin with is to have about three names to choose from for your California LLC just in case a name is taken already.

When you work with me to form an LLC in California, I’ll perform the necessary search to make sure the name you want is available. It’s necessary to check with both the California Secretary of State and with the United States Patent and Trademark Office.

Once you know the name you’ve chosen hasn’t been taken by another business, you can choose the name as your own.

Email me at sam@mollaeilaw.com to get started with naming your LLC.

 

Step 2: Select a Registered Agent

Step 2 of forming your LLC in California is to select a registered agent.

A registered agent must be an adult or a company with a physical address in California that can be available from 9 A.M. to 5 P.M. Monday through Friday.

The registered agent receives official documents on behalf of the company, including being served if the LLC is ever sued.

It’s important to note that any member of the LLC may be the registered agent as long as he or she meets the requirements above. However, most LLCs choose a professional company.

Choosing a company to act as your registered agent prevents you from having to be available throughout the week and eliminates junk mail at your home or business address.

 

Step 3: Have Business Lawyer Prepare Your Articles of Organization

The third step for how to form an LLC in California is to hire a business lawyer to draft and file your Articles of Organization.

Your articles of organization are required by law and are necessary in helping establish some of the operating policies and member responsibilities for the LLC.

 

The articles of organization must include:

  • The name of the LLC
  • The statement: “The purpose of the limited liability company is to engage in any lawful act or activity for which a limited liability company may be organized under the Beverly-Killea Limited Liability Company Act.
  • How the LLC will be managed – by members or managers.
  • The name and address of the registered agent.

Once the articles of organization are prepared, they must be filed with the California Secretary of State. The filing fee is $70.

The Secretary of State has up to 14 days approve or reject your articles of organization. You’ll either get a copy of the document or a notice of rejection.

Email me at sam@mollaelaw.com to request the articles of organization for your LLC. It’s important that you don’t try to just do this step yourself because it’s easy to make a mistake or forget to include something important.

 

Step 4: LLC Operating Agreement California

Next you must prepare an LLC operating agreement. California requires every LLC to have an operating agreement and it is one of the most important documents you’ll ever prepare for your LLC.

An operating agreement that is tailored to your LLC should be prepared and filed by your business lawyer so that it is accurate and complete.

At the very least, your California LLC operating agreement should include:

  • How the LLC is managed
  • The method of choosing the managers if it’s manager managed
  • The method of choosing officers if it’s member (officer) managed
  • The terms, duties, and salaries of the managers or officers
  • How many members the LLC has and percentages of ownership
  • Rights and duties of each member
  • When and how much each member will contribute to the LLC
  • Details about the financial and tax records that should be sent to the members
  • How profits and losses are distributed
  • How meetings will be held, how long they’ll be, where they’ll be, and who’ll be included
  • Voting requirements and interests of each member
  • How a member can withdraw from the LLC
  • Grounds for termination of an LLC member
  • How new members may be added
  • Regulations regarding transferring membership
  • How the LLC will be dissolved
  • How the operating agreement may be amended in the future

These are just the standard items every operating agreement should have. This list doesn’t include anything for unique situations – so it’s really something a lawyer should draft for you to make sure the document is perfect for your LLC.

Email me at sam@mollaeilaw.com to skip the hassle of figuring this out on your own and get a complete, custom operating agreement.

 

Step 5: Get an Employer Identification Number (EIN) from the IRS

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Step 5 for forming an LLC is to apply for your LLC’s Federal taxpayer identification number, called the EIN.

You complete IRS Form SS-4 to request your EIN. If you are a US citizen with a social security number, obtaining an EIN may be easy for you.

If you don’t have a social security number, you can still obtain an EIN, but the process is one that should be done by a business lawyer.

I’ve helped hundreds of individuals obtain their EIN, with or without a social security number, so just email me at sam@mollaeilaw.com for help.

Read more here about how to get an EIN without SSN.

 

Step 6: Open a Bank Account for the LLC

The next step in creating your LLC is to open a bank account in the LLC’s name to handle all business transactions.

 

Step 7: Have Members Draft an Investment Representation Letter

Step 7 for forming your LLC is to have each member draft an investment representation letter.

The investment representation letter just states what each member will contribute to the LLC, in the form of services or money, in exchange for their membership percentage.

Every letter should specify the member’s contribution. Additionally, each letter should also state:

  • The LLC won’t have over 35 members.
  • The member has a relationship with the LLC, one of the members, or will be actively involved.
  • The member is requested their percentage of ownership for their own purposes, with no intent to sell it.
  • No advertising or solicitation occurred in respect to buying LLC interests.
  • The value or amount of cash or services the member is providing for their share of interest in the LLC.

This letter isn’t difficult, but if you’ve never seen one before, you may have a hard time preparing it properly.

Each member should be issued their interest certificate and a membership interest ledger should be prepared.

The membership interest ledger specifies the name and address of all members, their contribution, and the date that they became a member.

 

Step 8: Prepare and File Form LLC-12 Statement of Information

The Statement of Information, or Form LLC 12, must be prepared and filed next.

California law requires LLCs to keep their public record updated by filing a Statement of Information with the California Secretary of State.

The statement of information is filed with the Secretary of State California LLC within 90 days of filing the articles of organization.

Statement of information for LLCs must be submitted on paper.

Further, an annual $800 LLC tax is due by the 15th day of the fourth month after LLC formation and every year thereafter. If the LLC's income exceeds $250,000, it will owe an additional LLC tax based on the income amount.

The $800 minimum tax prepayment is due by the 15th day of the 4th month after LLC formation. The next tax year, the $800 minimum tax is due on April 15. So if you form an LLC on December 1, and you file taxes on a calendar year basis, the $800 minimum tax is due by March 15. Another $800 payment would be due again on April 15.

The fee to file is $20. The statement of information should include:

  • The name of the LLC
  • The LLC identification number
  • The LLC’s state
  • The address of the principal place of business and mailing address
  • The CEO’s name and address if there is one
  • The names and addresses of the managers
  • The registered agent’s name and address
  • The company’s nature of business

 

Step 9: Pay the Annual $800 Fee to the California Franchise Tax Board

Every California LLC must pay an annual franchise tax of $800 to the California Franchise Tax Board.

This fee is due by the 15th day of the fourth month of your LLC’s taxable year and is the California LLC fee.

 

Step 10: Determine the Tax Status for the LLC

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In most cases, your LLC can be classified as a sole proprietorship, a partnership, a C Corporation, or an S Corporation for tax purposes.

Determining the tax status for your California LLC is the next step in the process of how to start an LLC in California.

If you need help with this decision, please email me at sam@mollaeilaw.com and I can advise you based on my experience.

 

Step 11: Apply for Any Necessary Permits and Licenses

Depending on your city and county in California, you may need a business license to do business. The state of California may also require you to be licensed if you’re going to perform certain services.

If you’re unsure about the requirements for your state, as a business lawyer, I can help you.

 

How to Dissolve an LLC in California

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To dissolve LLC California, you should first check with your formation documents to see what you and the other LLC members established for dissolution.

If it’s not unanimous to dissolve the LLC, you need to file a certificate of dissolution with the Secretary of State.

Once the document is filed and approved, your LLC is considered dissolved. It exists only for a few wind-up tasks to finish any necessary business matters.

You can dissolve in California by:

  • Dividing the LLC’s assets
  • Disposing of the LLC’s property
  • Prosecuting or defending matters by or against the LLC to collect and relieve any obligations
  • Paying any outstanding debts and taxes
  • Notifying a notice of the beginning of the winding up activities to any claimants and creditors

If every member agrees to the dissolution of the LLC, you file a certification of cancellation only with the Secretary of State.

If the vote wasn’t unanimous and you had to file a certification of dissolution, you’ll file the certificate of cancellation after the LLC’s wind-up activities have concluded.

If you need help dissolving an LLC, contact me at sam@mollaeilaw.com and I can help you determine and carryout the proper steps.

 

California Statement of Information LLC

The California Statement of Information LLC is a document required to form your LLC.

The statement of information is also called Form LLC 12.

As noted before, the statement of information should include:

  • The name of the LLC
  • The LLC identification number
  • The LLC’s state
  • The address of the principal place of business and mailing address
  • The CEO’s name and address if there is one
  • The names and addresses of the managers
  • The registered agent’s name and address
  • The company’s nature of business

 

California LLC Tax

Every LLC in California must pay an $800 franchise tax fee every year it exists.

Additionally, there is a California LLC tax schedule you may want to be aware of so you can estimate your tax burden.

The fee schedule for taxes for your LLC in California is as follows:

Total Income

Fee Amount: $0 for Total Income of $0 - 249,999

Fee Amount: $900 for Total Income of $250,000 - $499,999

Fee Amount: $2,500 for Total Income of $500,000 - $999,999

Fee Amount: $6,000 for Total Income of $1,000,000 - $4,999,999

Fee Amount: $11,790 for Total Income of$5,000,000 or more

 

LLC California Cost

To form an LLC in California, it costs $85 for the California LLC fee, $20 to file the statement of information, and an $800 annual franchise tax fee.

You may also need to obtain business licenses, which vary from $50 to $100 each.

California LLC filing fees are $70 for filing the Articles of Organization with the state and $20 for filing a Statement of Information within 90 days. On an annual basis, the Secretary of State requires that LLC’s file a Statement of Information once every 2 years.

If you have a lawyer prepare your formation documents, and you should, you may want to consider the costs of those as well.

 

Conclusion

Sam Mollaei, Esq., Business Lawyer

Sam Mollaei, Esq., Business Lawyer

Forming an LLC in California is a multi-step process that can be complicated to figure out on your own. There are also multiple California LLC fees you should be aware of.

If you need help with any step mentioned above, please don’t hesitate to reach out to me. I’ve been helping individuals form LLCs and other types of businesses for years now and I can help you too.

Email me at sam@mollaeilaw.com and let me know how I can help you