If you are thinking about forming an LLC in California and wondering if the process is straightforward or complicated, here is a comprehensive step-by-step guide.
To form an LLC in California, you have to file an Articles of Organization with the California Secretary of State, which costs $70.
How to Form an LLC in California (7 Simple Steps)
- 1 What is an LLC?
- 2 What are the benefits of forming an LLC?
- 3 Steps to Forming an LLC in California in Seven Simple Steps
- 4 Get Help from Professional Service
- 5 How Micahguru Formation can help
What is an LLC?
A limited liability company, or LLC, is a separate legal entity created under state law. It combines elements of a sole proprietorship, partnership, and corporation and offers owners a lot of flexibility.
The owners can decide their management structure, operational processes, and tax treatment. One person can form a single-member LLC, or multiple people can form a multi-member LLC. Businesses identified as LLCs will usually have the phrase “limited liability company” or the abbreviation “LLC” at the end of their legal name.
The defining feature of an LLC is that it offers owners protection from the debts and obligations of the business. In the normal course of business, a business creditor or someone who sues the business cannot come after the personal assets of the owners.
What are the benefits of forming an LLC?
There are several reasons why people choose to form an LLC. Some of the main benefits include:
- Limited liability protection. Owners of an LLC have limited personal liability for business debts, so they can keep their personal assets safe from creditors and other third parties that may be owed money by the company.
- Flexible management structure. Unlike corporations, LLCs can be run by one owner or multiple owners who collectively make up a board of directors. This flexible structure helps you get things done while reducing costs related to hiring an employee or obtaining outside legal help during times when your business needs it most (like when starting out).
- Pass-through taxation. Unlike C-Corps or S-Corps, which are both taxed at corporate income tax rates based on their taxable profits each year (the same way that traditional corporations pay taxes), LLCs do not pay taxes directly—their members report their share of income on their individual tax returns in the same manner as sole proprietorships or partnerships (without having to deal with additional paperwork).
Must Read: 4 Tax Benefits of forming an LLC
Steps to Forming an LLC in California in Seven Simple Steps
It is straightforward to form an LLC in California or any other state with the proper knowledge and guidance.
Generally, There are two ways to form an LLC in California: Do it yourself or get a professional formation service to do it for you.
To form an LLC in California, you have to follow these steps:
- Naming your California LLC
- Appoint California Registered Agent
- Preparing the Certificate of Organization
- File the Initial Statement of Information
- Draft your LLC Operating Agreement
- Apply for an EIN
- Open your Business Bank Account
Naming Your California LLC
The first step to forming an LLC is to select a name for your LLC. Generally, you will need to follow this naming instruction:
- Your company name should be unique and easy to remember so that people can find your company when they search online or hear about it in passing.
- It must end with “Limited Liability Company” or “Limited Company” to protect your personal assets from any debts incurred by the company itself.
- The name cannot contain any restricted words under California law; this includes terms such as “bank,” “insurance company,” or “trust company.”
- It cannot be similar to another business registered with the state (e.g., if another California LLC has already used “Bob’s Bagels” for their brand).
- Lastly and most importantly, you want something that will stand out from all other businesses on file with the state!
Appoint A California Registered Agent
To form an LLC in California, you will need to designate a registered agent. Registered agents are physical people or businesses who have been approved by the Secretary of State and are present at their address during business hours.
They are responsible for receiving important legal documents on behalf of your business, such as summonses and complaints related to lawsuits against your company.
You can choose anyone as your registered agent (including yourself). You can also use a professional service such as Northwest Registered Agent Service if you don’t want to designate someone else as your company’s representative in California.
Preparing the Certificate of Organization
The Articles of Organization is the form you have to submit to the state to form an LLC in California.
It’s also known as a Certificate of Formation or Certificate of Organization. The name may vary depending on your state, but in California, it’s called Articles of Organization.
Your Articles of Organization must include these elements:
- Name of your LLC.
- Name and Address of the Registered Agent of your LLC.
- Signature of an Authorized Person.
File the Initial Statement of Information
In accordance with California state law, all new Limited Liability Companies (LLCs) have to file an Initial Statement of Information with the California Secretary of State within 90 days of the date they file their Articles of Organization.
To learn what an Initial Statement of Information is and why it is required, read this guide to What Is a Statement of Information?
Draft an LLC Operating Agreement
Once you’ve formed your LLC, it’s important to create an operating agreement, which is a document that gives the company details on how it will operate. It is necessary to have an operating agreement in California State.
An operating agreement covers things like:
- How much money members of the LLC are required to pay to maintain their membership in the company, or what percentage of profits they’re entitled to.
- How meetings will be conducted and who can attend them.
- How much power each member has over the daily operations of the company (this is called “managerial control”).
The best way for new investors to understand everything about how their investment portfolio works is by reading up on these policies before making any investments in an LLC and reading through an operating agreement first can help make sure everyone’s needs are met without having any surprises along the way!
Apply for your EIN
An EIN (Employer Identification Number) is also known as the Federal Employer Identification Number or Federal Tax Identification Number.
It is a number assigned to your business by the IRS that you will need for various business purposes. Some of them are:
- To hire employees and workers.
- Opening a separate business bank account for your company.
- To get Sales Tax Permit and other Business Licences.
- To file your taxes in the United States.
- To create your account on different eCommerce platforms such as Amazon FBA, eBay, Paypal, Shopify, Stripe, etc.
To apply for your Employer Identification Number, you must complete IRS Form SS-4.
Learn More: How to fill out the SS-4 form
Open A Business Bank Account
Once your LLC is formed, it’s time to open a separate bank account for your company.
This is one of the most important steps after forming an LLC because it allows you to receive money from clients and suppliers, pay employees, and manage your finances.
There is no shortage of banks for U.S. residents, but if you live abroad and do business in the United States, finding the right bank may be more challenging since most U.S. banks require you to visit your local branch to open a business bank account.
Read this guide to the five best business bank accounts for your LLC to find the bank that meets your business needs.
Get Help from Professional Service
If you don’t have the time or do not want to handle lengthy paperwork to form an LLC in California, you can simply hire a professional incorporation service to handle it for you.
There are many incorporation services available online that will handle all the paperwork and register your business in any state of the United States.
Read this guide to the 7 Best LLC Formation Services to find the best service that matches your needs.
How Micahguru Formation can help
You’ve come to the right place if you’re thinking about forming an LLC in California with the help of a professional incorporation service.
Micahguru Formation is a U.S. incorporation company that helps founders and entrepreneurs globally to launch and manage their U.S. businesses remotely.
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