How to Start an LLC in California

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California has always been a place for dreamers and innovators—a land of diverse opportunities and promise. And because it ranks as #30 on the Forbes Best States for Business list, starting a business in California is a goal for many entrepreneurs.

Despite its popularity, California has notoriously strict rules and regulations when it comes to owning and operating a business. That’s why understanding exactly how to start a business in California is so important.

In this blog post, we’ll take you step by step through the process, including general requirements you need to prepare for and the resources you need to to succeed. This way you can learn how to start a new business in California without the headache.

Let’s get started!

Choose a Business Entity

Learning how to start a business in California begins with business formation. Limited Liability Companies (LLCs) and Corporations are the most popular entity structures. And while we will focus on LLCs in this blog, we will briefly explain the difference between an LLC and a Corporation.

Corporation

A corporation is a legal entity created separately from those who own and operate it. A corporation’s debts and taxes are separate from its owners, thereby offering the greatest personal liability protection of all business structures. The two most common types of corporations are S and C corporations.

Limited Liability Company

LLCs are the most popular business structure, blending the aspects of corporations, partnerships, and sole proprietorships into a simple and flexible business entity. Like corporations, LLC formation protects the owners and operators from personal liability similar to a corporation, and they possess the “pass-through” tax benefits of a partnership.

So, whether you’re trying to figure out how to open a new retail store in California or even how to start a consulting business in California, starting with an LLC or corporation is the first and most important step.

What About DBAs?

DBAs (which stands for “doing business as”) grants business owners the ability to conduct business under an assumed name. A DBA (A.K.A, fictitious business name) is an authorization by the state for your business to operate under an assumed name. 

For sole proprietors and owners of LLCs, DBAs offer a cheap way to gain legal recognition for the secondary name of your choice.

  • Sole proprietors: For sole proprietors starting a new business, DBAs are a budget-conscious way to gain legal status and work under a creative company name.
  • LLC owners: If the name on your LLC paperwork and your business name differ, DBAs offer the opportunity to operate as an LLC under a different legal name.

DBAs come with benefits like the ability to open a bank account, create enforceable contracts, and establish federal employer tax status (getting an EIN). It’s possible to file multiple DBAs, allowing a single LLC to operate different businesses under the same legal umbrella. If you’re starting a business or expanding your LLC in California, get the proper legal recognition early on to start off on the right legal footing. 

Our entity-setup service is 100% free.
We’ll waive our service charges, labor costs, and overhead. You only pay the state fees and postage, which are mandatory regardless of who incorporates for you. Start now for free!

California State Filing Fees

One of the biggest expenses of forming an LLC or corporation in California (or any state) is the filing fee. This one-time fee can be upwards of $500. You pay this fee to file a document called the Certificate of Formation with the California Secretary of State. Luckily, the filing fee in California is only $70.

Additionally, all California LLCs are required to file an Initial Statement of Information (Form LLC-12) with the California Secretary of State within 90 days of formation. This can be done online, in-person, or by mail.

Typically, a Statement of Information will need to provide information about the business’s registered agent and its management or officers, as well as the business’s place of business and mailing address.

You also might want to file what’s called a Certificate of Good Standing. This isn’t required, but is good to have.

A Certificate of Good Standing is used to say that a company is authorized and incorporated to conduct business in a certain state. The Certificate of Good Standing is used to demonstrate two important things:

  1. The company has been in existence from the time of incorporation; and
  2. that no action is currently being undertaken in order to remove the company from the register.
California State Filing Fee:$70
California State Filing Time:3 weeks
Statement of Information$20
Certificate of Good Standing$5

File by mail:
Secretary of State
Business Entities Filings
P.O. Box 944228
Sacramento, CA 94244

Our entity-setup service is 100% free.
We’ll waive our service charges, labor costs, and overhead. You only pay the state fees and postage, which are mandatory regardless of who incorporates for you. Start now for free!

Create a Business Name

When considering how to start a California business, figuring out your LLC name is one of the biggest decisions you’ll make. It may not seem as important as choosing the type business entity, but it is. As a matter of fact, many legal issues can arise from choosing the wrong name for your business startup. California local law has especially strict restrictions on certain business names.

So, let’s look at how to register a business name for your California LLC:

  • First off, come up with a unique business name that captures what your business will do, is easy to pronounce, and isn’t era specific or too niche. This is easier said than done, so take your time.
  • Once you’ve decided on a name, search the web to make sure no one is using it. This may force you to go back to the drawing board. You might also want to check if your desired website URL name is already taken, then plan for an alternative.
  • After doing a basic search, you’ll need to do a more thorough trademark search. This is an important step that can lead to a lawsuit if done incorrectly. A good rule of thumb to follow when doing a trademark search is to search for misspellings, plurals, variations of spelling, sound-alike and more…
  • Finally, to secure your name reservation, California law requires you to run your chosen name through the California Secretary of State’s business entity database making sure to follow the same rules mentioned above.

Register Your Business

Now that you’ve decided on an entity structure and created an original business name, here’s how to register a business in California.

Articles of Organization

You only need to file your Articles of Organization with the State of California once, but you will need to file a biennial report for your LLC, which has its own fees.

There are three ways to do this. You can download and mail in your California Articles of Organization, create an account and file online, or have Inc Authority file do it on your behalf. If you decide to take a crack at on your own, you can either file it online at the California state portal called CalFile or it can be mailed with your $70 filing fee.

Below is the information that must be included in the articles of incorporation to ensure the state approves them:

  1. Entity Name
  2. Location of LLC Office
  3. Service of Process Address
  4. Registered Agent
  5. Management Structure
  6. Effective and Dissolution Dates

You only need to file your Articles of Organization with the State of California once, but you will need to file a biennial report for your LLC, which has its own fees.

Operating Agreement

Once you file Articles of Organization, and after they’ve been approved, you’ll need to properly organize your LLC with an Operating Agreement.

California law requires every LLC business owner to file an Operating Agreement, regardless of whether the company has one or multiple members. Your Operating Agreement will outline the structure and purpose of your company as determined by your LLC members and will bind all the members of your LLC.

Here’s what your LLC Operating Agreement should include:

  • Member powers
  • Rules for meetings
  • Members’ voting rights
  • How your LLC will be managed
  • Guidelines for losses and profits
  • Buyout provisions

Once the Operating Agreement has been adopted, it will provide protection for the members of your LLC. When the members of your LLC have agreed to the terms of your Operating Agreement and have signed the document, you should keep the agreement in a secure location.

Inc Authority can remind you to do or do for you if you choose to have us handle the paperwork. 

Get Your Employer Identification Number or EIN

The next step you’ll want to tackle is getting your EIN or Tax ID Number (TIN). This federal number is like your business’s social security number, separating you from your business. This protects you from fraud and identity theft.

Additionally, banks require LLCs to have an EIN to open a Business Checking Account, file tax returns, obtain payroll services, and credit cards.

Attain Your Business Licenses and Permits

Getting the proper business licenses and permits for your small business, authorizes your company to do business in your city/county.

When is comes to applying for a business license, California fortunately makes it easy with a simple system called CalGold to help entrepreneurs discover what licenses/permits they need. This will vary depending on your operating city county and industry. 

Keep in mind that licensing requirements may vary from city to city. So, if you’re planning on starting a business in Sacramento, California, be sure to look up the license and permit requirements for that city.

Check with local small business offices, often part of the County Clerk or branch of the city government, to learn more. The Small Business Association (SBA) also offers expertise in finding local forms and permits or you can use an online business license service provider to obtain the proper licenses and permits for you.

Lastly, remember that licenses and permits will need to be renewed annually or in some cases, biennially. You can note these renewal dates on your own, or let Inc Authority send you reminders as it gets closer to the date.

Get a California Registered Agent

There are an estimated 38 million home-based businesses in the U.S., so if you’re thinking about starting a business in your home, you’re definitely not alone.

But, did you know that all businesses are required by law to have an address where they can accept service of legal documents (like a service of process) from the state or government agencies during normal business days and business hours? Without a Registered Agent, your business address is your home address or P.O. box.

As you can imagine, that’s not always possible (or advisable) with a home-based or foreign-filed business. That’s where a registered agent comes in.

A registered agent is a responsible third-party in the same state as your business who receives official government notifications (usually tax forms and notice of lawsuits) on behalf of your LLC .

Even if you aren’t planning on starting a home-based business or foreign LLC, having a registered agent is still advisable because it will:

  • Limit third party access to your personal information
  • Ensure that you never miss important documents
  • Protect the privacy of owners
  • Eliminate junk mail
  • Ensure you’re never served with legal papers in front of your clients
  • And more!

How to Set up Registered Agent Service in California

While it is possible to act as your own registered agent, lawyers do not advise that. That’s why most companies hire a third-party (a professional service) to act as their registered agent.

Why not let Inc Authority act as your registered agent. We’ll be the buffer between your business’ legal matters and your physical place of business. That way, anyone trying to locate you, or the LLC must first come through us.

Learn more about our registered agent services here.

Open a Business Bank Account

To keep your personal and business expenses separate and to stay in good standing with the IRS, you need to open a business bank account for your LLC or corporation.

Setting up a separate bank account for your company makes it easier to for you do business, manage a cash balance, complete and file your income tax returns with the state of California, deduct business expenses for taxes, conduct proper accounting, and execute employee payroll. It also provides better protection if someone takes legal action against your company.

Additionally, business bank accounts create historical relevance through the relationship established with the bank, and can create unrestricted access to long-term funding options, business credit cards, and other financial solutions.

California State Taxes 

Filing business taxes is the least enjoyable part of running any business, but to stay in good standing with the Internal Revenue Service (IRS) and save thousands of dollars, you need to properly file your taxes.

Because the state of California (like most states) treats LLCs as corporations or limited liability partnerships, your California LLC is subject to California’s Personal Income Tax. It is also subject the California Franchise Tax board’s franchise tax, which conforms to federal income tax classifications. Depending on the type of taxation you as the business owner chose for your LLC, the tax responsibilities are as follows:

  • An LLC treated as a limited liability partnership. State law requires your LLC to file the Form IT-204, or Partnership Return Form with the state of California.
  • An LLC treated as a C corporation for federal tax purposes, or an S corporation. State law also requires California LLCs to file a State Corporation Franchise Tax Return.
  • An LLC treated as a sole proprietorship. These LLCs must report all business income and expenses via the sole proprietor’s personal income tax returns.

LLCs must pay an LLC filing fee or an estimated income tax on behalf of certain partners or members.

Let’s get started

Starting a business in California is an exciting opportunity, but like starting most businesses it can be overwhelming. Why not let the business experts at Inc Authority do all the heavy lifting for you?

We’ll form your LLC or corporation, run a business name check, get your EIN, and make sure you have all the licenses and permits needed to run your business in California.

Not to mention we offer a ton of free management tools to help make running your business as simple as possible. Contact us today to get started!

Incorporating is the most powerful thing you can do to legitimize your startup. And at IncAuthority.com, our setup LLC services are 100% free. Always. So, don’t wait. Form your new LLC today and enjoy the protection due to you and your business under the law.

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