Did you know that Limited Liability Companies (LLCs) account for 70.4% of partnership returns? There’s an ongoing interest in starting LLCs because of the many benefits of using an LLC to operate your business.
If you’re looking to start your own business, one of the most important decisions you’ll make is how to structure your business at the outset. Unlike a sole proprietorship, an LLC has the benefit of protecting your personal assets from creditors.
If you’re wondering how to get an LLC in California, you’ve come to the right place. Keep on reading for everything you need to know about how to start an LLC in California.
Is an LLC Operating Agreement Required in California?
The first thing you need to know is that the LLC California operating agreement is required in California. Even, single-member LLCs need an LLC operating agreement. This means that even if you’re starting the business on your own and decide to operate an LLC, you’ll need to draft and sign a California LLC operating agreement.
Remember that you don’t need to file your agreement. Just keep it on file so you can pull it out when needed.
California Operating Agreement Laws
You should know that different states have different rules that govern LLCs and sets out rules for the LLC operating agreement.
The rules that govern an LLC are set out in Title 2.6 California Revised Uniform Limited Liability Company Act. The provisions in the Act set out what the California LLC operating agreement needs to include, such as:
- Relationship among members and LLC,
- Rights and duties of a manager,
- Activities of LLC, and
- Conditions for amending operating agreement.
The right California operating agreement template will include all this information and more.
How Much Does it Cost to Form an LLC in California?
If you’re starting a business, you need to know how much an LLC in California is. The cost of starting an LLC depends on which state you’re starting it in. In California, you need to pay a domestic filing fee of $70.
You will also need to do annual and biennial reporting. You will need to pay an annual franchise tax of $800 minimum per year. You will also need to file a Statement of Information every two years at a cost of $20 per filing.
For foreign filers, the same fees of $70 for foreign filing and $20 for biannual reports apply.
How to Get an LLC in California
Forming an LLC in California can be simple as long as you do your research and understand what you need to do. We have set out a step-by-step guide to help you understand how to apply for an LLC in California.
Step 1 – Choose Your Name
Your name is your brand. The first step in starting your new business and operating it as an LLC is choosing a name. You have to ensure that the name you pick is unique. Picking the same name as another business can be misleading.
The first thing you need to do is check the California Secretary of State’s business name database. If the name you picked isn’t used by another business, you can reserve the name for up to 60 days by filing a “Name Reservation Request form”. You can file this form online or drop it off at the Secretary of State office in Sacramento.
Remember that the name you pick should include “Limited Liability Corporation” or “LLC” or “L.L.C.”. You can abbreviate the words “Limited” and “Company” to “Ltd.” and “Co.”
Another important aspect to note is that you cannot use the words bank, trust, trustee, incorporated, inc., corporation, corp., insurer, insurance company, or any other words suggesting that it is in the insurance business.
Step 2 – File Articles of Incorporation
The second step is to file articles of incorporation with the Secretary of State’s office. Unlike the Name Reservation Request form, the articles of incorporation can be filed online. You can also file it by mail or in person if you choose. Remember that you need to pay a filing fee of $70.
Step 3 – Choose a Registered Agent
You also need to choose a registered agent or an “agent for service of process”. This is the individual or company that will accept legal papers on the LLC’s behalf. Agents must reside in California and their street address must be listed in the LLC’s articles of incorporation.
The LLC itself cannot be the agent, but you can pick a member of the LLC, a manager, or a lawyer. Remember that the agent does not need to be affiliated with the LCC. You can also pick a separate service that can act as an agent for a fee.
Step 4 – Decide on Management Structure
You need to decide how you’re going to run your business. If you’re a small business with a few members, then all members can manage the business. You can also have a separate manager to deal with the operations of the business. Managers act as a board of directors and make decisions for the business.
Step 5 – Prepare Your California LLC Operating Agreement
You can set out all the details of the management structure in your California LLC Operating Agreement. Even if you are a one-person LLC, it makes sense to keep a California operating agreement on file.
Step 6 – File Statement of Information
You need to file a Statement of Information within 90 days after filing your articles of incorporation. You will need to pay a filing fee of $20. Remember that you also need to file this form every two years.
A Statement of Information sets out some details about the LLC including, name, file number, address of agent for service of process, address of office, mailing address, and valid email address.
Step 7 – Comply With Your Tax and Regulatory Requirements
Make sure to pay all your taxes. You need to file annual tax returns and pay an annual franchise tax of $800 minimum per year. LLC’s with a net income of over $250,000 will have to pay additional fees.
Also, make sure to comply with all your regulatory requirements such as business licenses, and sales and employer taxes.
California LLC Operating Agreement Template
The most important element is finding the right California LLC operating agreement template. The right template such as the one below can make all the difference in making your experience smooth when you’re starting a new business as an LLC.