Most people who start a new business choose to go for an LLC. The reason behind the popularity of this type of company is the protection it provides its members regarding personal liability.
You need to know a few things before you start an LLC in California. You must be aware of the paperwork involved and the regulations of the state.
This article will give you a step-by-step guide on how to start an LLC in California.
Related: Best LLC Formation Services
Find a Name
One of the most important things you need when starting an LLC is a business name.
You need a name that represents the values of your company and also complies with state law.
Feel free to be creative, but make sure you are in compliance with all the regulations.
There are three major things you need to keep in mind when it comes to naming your LLC in the state of California:
- Whatever name you decide to go with must have the words “limited liability company” in it. You can also choose to go with any abbreviations of this phrase, such as L.L.C, LLC, Ltd. Or Co.
- The name you choose for your company has to have a clear distinction in all forms from any government agencies. For example, your company can not have the abbreviation of FBI.
- According to state law, some words are restricted, like Attorney, Bank, University, etc. You will need specialized paperwork and need to follow specific guidelines according to state law if you want to have any such terms in your company name.
- Here is the complete list of rules and regulations according to the State of California.
There are a few other things you need to keep in mind.
The name you decide for your business has to be available in the State of California. If another company has already taken the name, then you might not be able to use it.
You can use this tool to see if a specific name is available in the State of California.
Since you will likely want a website for your business, it is advisable to check whether the domain is available or not for the name you’d like. You can use this tool to check the availability of domain names.
Assign a Registered Agent
The state requires you of California to appoint a registered agent. A registered agent is either a business entity or individual responsible for the dealings between the government and your LLC.
This includes all forms of official paperwork like legal documents, tax forms, official correspondence, and any lawsuits.
Your agent is going to act as a middleman between your company and the government. It is very important to put some thought into who you want to select as your agent.
If you have the right documents and authorizations and live in California permanently, you can also choose to elect yourself as the registered agent.
File your LLC articles of organization
Next up, it’s time to file your LLC articles of organization. To register your LLC in the state of California you are going to need Form LLC-1 – Articles of Organization. You will be required to file Form LLC-1 – Articles of Organization with the State of California to officially start your LLC.
You can do this in three ways: either online, in person, or through the mail. You will be charged a $70 fee when you are filling this form.
Before you file this form, you must decide if you want your company to be a member-managed operation or a manager-managed one.
Both of them have their advantages and disadvantages.
If you decide to go with a member-managed approach, the number of the official members of the LLC will remain relatively low. This approach will give these members the option to have a say in the company’s daily operations.
On the other hand, if you decide to go with a manager-managed approach, the members will not have much of a say in the day-to-day working of your company.
So, you will need to consider these details before filing your articles of organization. Once you file the official form, it is painful to change it, so take the time upfront.
It is advisable to use a lawyer to help you understand the form and help you fill it out properly. You want to file these papers correctly with the State of California to get the ball rolling on starting your LLC.
File initial Statement of Information
Another requirement of the State of California when starting an LLC is filing the Statement of Information.
This process needs to be completed within 90 days from the formation of the business.
There are three ways of filing this form. Online, download the form and mail it, or you can also go to their office and fill out the form in person. The fee for this form is $20.
Create an Operating Agreement
The next thing that you need to know is that you will require an operating agreement for an LLC in the State of California.
If you are unfamiliar with what an operating agreement is, it is a document that provides all the ownership details and the operational structure of your LLC.
An operating agreement is also beneficial for all the people involved in the company. It paints a clear picture of the company’s ownership and operating structure, reducing the chances of a conflict.
Get an EIN
An EIN or employer identification number is a unique 9-digit number assigned to your company by the IRS.
You will need an EIN if you want to hire employees and it can be used as your identifier for taxes. Think of it as a social security number for your business. If you do not get an EIN, you may not be able to do the following:
- Open a business checking account.
- Comply with state and federal tax laws.
- Officially hire anyone to work for your company.
You can get the EIN for your company by contacting the IRS. You can do this through mail or online. This process is entirely free of charge.
The Bottom Line
Starting an LLC in California is one of the best options for a new business owner.
Not only is it simple to start, but it protects you and your family from potential liabilities associated with the company.
If you do decide to set up an LLC, make sure you follow all the appropriate steps. Skipping parts of the process can void some of the benefits of the LLC structure.
Regardless of which business type you choose, filing your business is an obvious important step.
Don’t get overwhelmed by the process, and seek assistance if necessary. It’s not nearly as complicated as someone might initially think.
So get your business filed, and get going on your new idea!