How Do You Setup an LLC in CA?

The California coastline lined with palm trees, symbolic of setting up an LLC in beautiful CA.

Setting up an LLC in California will take your entrepreneurial idea to the next level. It will add legitimacy to your business and provide important legal and tax benefits. In general, starting a business can be a difficult, costly task that requires a lot of paperwork. But do not worry, we are here to help and guide you each step of the way.

LLCs are considered one of the easiest, quickest forms of business to set up in California. You just need to know exactly what to do. That is why we will provide you with a complete guide to make the process less confusing for you. First, let’s learn more about LLCs and all the benefits they provide.

What is an LLC?

“Limited Liability Company,” that is what LLC stands for. It is a type of legal entity that can be formed to own and run a business. Unlike other business types, LLCs offer liability protection and tax advantages. That is why LLCs are very popular in California and across the US.

Many business owners in California also prefer LLCs as they combine the best parts of corporations, sole proprietorships, and partnerships. An LLC offers liability protection, management structure flexibility, and some tax advantages. LLCs are also much simpler and cheaper to form and operate. You do not need to have officers, directors, and other administrative burdens that come with forming a corporation.

Why Should You Choose the LLC Business Type?

  • Limited Liability: As an LLC owner, you will not be personally liable for any debts incurred by your business. This means creditors or people whole file lawsuits against your LLC will not be allowed to collect against your personal assets. They can only collect their money from your LLC assets or LLC bank account. Your personal car, home, and bank accounts will be safe.
  • Pass-Through Taxation: The profits or losses of the LLC will pass through to the owner’s personal tax return. This means your LLC profits will be taxed at your personal tax rates.
  • Flexibility: Unlike other business types, an LLC provides huge flexibility. First, there is ownership flexibility. There are no minimum or maximum limits on the number of owners or members when it comes to LLCs. Your LLC can have only one member or hundreds of them. There is also management flexibility.The LLC can be managed by all the members, or you can choose to designate one or more managers to run the business. The designated managers can be members, non-members, or a combination of both.

Who Should Setup an LLC?

Whether you are starting a business or currently running one, you should consider setting up an LLC. It does not matter what type of business you have. LLCs can be used to own and operate almost all kinds of businesses. You can also set up an LLC for a business of any size. That is why LLCs are the most common legal form used to own and run a business in California.

A woman holding a large mug that says, "like a boss", symbolic of how you can be the boss if you setup an LLC in California.
If you start a new business in CA, you can finally be the BOSS. Very exciting…

What Are the Steps in Setting Up an LLC in CA?

Starting an LLC in California is relatively easy. It does not require using a lawyer. You can form the LLC yourself. Our step-by-step guide will help you go through the LLC setup process smoothly from start to finish.

Step 1: Name Your CA LLC

The first step of setting up an LLC is to choose a name for it. You need to make sure the name complies with the business name regulations of California. These are some of the most important naming requirements to keep in mind:

  • The name of the business must include the phrase “limited liability company,” or one of its abbreviations, like LLC, L.L.C., Limited, Ltd., Company or Co.
  • Your business name cannot contain words, such as FBI, State Department, Treasury, etc. These words can make people confuse your LLC with a government agency.
  • Some restricted words such as bank, university, attorney, lawyer, etc., may require additional paperwork and a licensed individuals to be part of the LLC.
  • Your LLC name must differ from all existing businesses in the state of California. To make sure the name you want is not already taken, you can conduct a search on the Secretary of State’s website.

We recommend also choosing a name that is easily searchable for your potential clients. Even if your business will not currently need a website, it probably will in the future. So, make sure to buy the domain name you want for your LLC from the start. Otherwise, it might be taken by somebody else.

Step 2: Choose Your Registered Agent

“Agent for Service of Process” is the common name for a registered agent in California. Every LLC in California is required to appoint an agent for service of process. This can be a person or a business entity. They will be your LLC’s point of contact with the state. Your agent for service of process will be authorized to receive official legal documents, government correspondence, and notices on behalf of your LLC.

Any agent for service of process must be either a full-time resident of California or authorized to conduct business in the state of California. It can be a person or an entity. You can even choose yourself or an employee of your LLC to be your agent for service of process. In all cases, the agent for service of process must meet the following criteria:

  • Entities must provide registered agent services.
  • Must have a physical street address in California.
  • Must be available on-site to accept documents on behalf of your LLC, during regular business hours.

Step 3: File CA Articles of Incorporation

To officially create an LLC in California, you must file Articles of Organization using Form LLC-1. This form must include your LLC’s name, purpose, management structure, address, and registered agent information. As the person forming the LLC you must also sign the form.

The Articles of Organization can be submitted to the California Secretary of State online or via mail. You can also hand-deliver the form to the office of the California Secretary of State. The online filing fee is $70. Once you file the form, the Secretary of State will review it. If it gets approved, you will receive a certificate that confirms your LLC formally exists. You can use this certificate to obtain an Employer Identification Number (EIN), business licenses, and a business bank account.

A large "Open" sign in a shop window, symbolic of starting a new business in CA.
Thinking of opening a new business in CA? Do some reading, thinking, and planning, and reach out to My OC Bookkeeper if you need help!

Step 4: File a Statement of Information with California

Within 90 days of filing the Articles of Organization, you will be required to file an Initial Statement of Information (Form LLC-12). This ensures you retain the name of your LLC and its status with the state. The Statement of Information is also filed with the Secretary of State. Just like the Articles of Organization, it can be done online, in-person, or by mail. The online filing fee for the Statement of Information is $20

Any Statement of Information should include:

  • Name and mailing address of your LLC
  • LLC’s California Secretary of State file number
  • LLC’s agent name and address
  • LLC’s principal business activity
  • Name and business or residence address of the LLC manager or chief executive officer

Before filing your LLC Statement of Information, remember that all the information in it will be open for public record.

Step 5: Create an LLC Operating Agreement

This legal document should outline the ownership and operating procedures of your LLC. In California, it is required for an LLC to have an operating agreement, even a single-member LLC. However, it is an internal document. The operating agreement does not have to be filed.

Having a comprehensive operating agreement in place is important for various reasons. It could be used to settle financial or managerial disputes that may arise in the future. An operating agreement should include:

  • The LLC name, address and purpose
  • Duration of the LLC
  • Members of the LLC and their contribution
  • Management structure of the LLC
  • How the profit/loss will be divided
  • Contacts of the registered agent
  • Information about the Articles of Organization
  • Liability clauses

Step 6: Apply for an Employer Identification Number (EIN)

The EIN is basically the Social Security number for your LLC. It is what the US Internal Revenue Service (IRS) uses to identify and tax any business. Your LLC can apply and obtain the EIN for free by mail or online through the IRS.

Receiving an EIN is a necessary process for any LLC. It allows you to open a business bank account. The EIN is also required to hire employees for your LLC.

Other Resources for Starting a Business in CA

Setting up your LLC in the state of California comes with many benefits. California is not just a place of sunny weather and great beaches. It is also a thriving market filled with exciting businesses. Feel free to use the resources below to learn even more about how to join them.

California Secretary of State – this is the go-to website to start a business in California. It includes all the essential information to get you started.

California Franchise Tax Board – here, you will find all the information you need to handle your personal and business income taxes in California.

You can also learn even more about Setting Up a Business in Orange County, California (including more detail on the differences between the major business types) through our previously published blog post. (Just click the link above.) Or, if you are a visual learner, check out the great video below.

Now that you are a master on LLCs, maybe you should learn about S-Corps next. Click here for our handy introduction to S-Corps. Or, if you would prefer to learn about sole props, click here.

Have a friend or family member who is wondering, “How do you setup an LLC in CA?” – send them here!

To successfully start a new business in California, you need to find all the support you can get. At My OC Bookkeeper, you will find the best bookkeeping, accounting, and business strategy experts in California. Reach out to us now and let’s do great things together.

Setting Up a Business in Orange County, CA

Opening a Business in California

The My OC Bookkeeper Guide to Setting Up a Business in Orange County, CA

Ready to start a business in Orange County, CA? There are a lot of things to think about, but don’t worry we are here to help. My OC Bookkeeper (Orange County’s best bookkeeping and accounting firm) has put together this guide to help you on your way. In addition to some great info, we’ve included links to websites that will be valuable throughout the process. So, without further ado, My OC Bookkeeper’s guide to setting up a business in Orange County, CA. (By the way, if you aren’t located in Orange County don’t worry, these tips will be helpful wherever you are.)

Step 1: What Kind of Business Should I Set Up?

There are seven basic types of businesses you can set up. The types are: sole proprietorship, corporation, limited liability company (LLC), limited partnership (LP), general partnership (GP), and limited liability partnership (LLP). We will describe each one in turn.

Sole Proprietorship – a sole proprietorship, or sole prop, is generally considered the easiest and cheapest form of business to form. It enables an individual (rather than an ownership group) to setup and own a business. Importantly, with a sole prop the owner and the business are considered a single entity, so the owner is responsible for all of the obligations and liabilities of the business. They have complete control, and individually take the profits and pay the taxes. If the business is to have a name different than their own, i.e. Steve Baker, then a fictitious business name, or dba, must be filed with the county where the business operates. There are no specific documents that must be filled with the CA Secretary of State, although depending on the type of business there may be paperwork and registrations required.

Corporation – a corporation is a usually a legal entity that is entirely distinct from its ownership. The structure prevents liability from passing from the business to the owners; however taxes are paid by both the company itself and the shareholders. Unlike most business entities, corporations can sell stocks and bonds to raise capital, and the company can survive long after the initial owners have passed away.

To set one up you will need to file Articles of Corporation with the California Secretary of State. A corporation is one of the more complex business entities, and it is best to speak to a lawyer before creating one.

Limited Liability Company (LLC) – like a corporation, a limited liability company provides ownership protection from liabilities associated with the business. (For example, if someone sues the business, the owner’s assets are not at risk, only the business assets are.) An LLC is generally cheaper and easier to set up than a corporation, but more expensive than a sole proprietorship. To do so requires filing Articles of Organization (Form LLC-1) with the State of CA. You must also complete an operating agreement describing the affairs and activities of the business and keep it at your office. (You don’t have to file it with the state.) It costs $800 a year to maintain an LLC in California.

Limited Partnership (LP) – a limited partnership must have at least one general partner and one limited partner. The general partner acts as the controlling partner and is personally liable for all of the business’s liabilities. The limited partner has a certain amount of protection from the liabilities of the company depending on their level of participation. (Definitely talk to a lawyer before setting up an LP.) In CA, you will need to file a Certificate of Limited Partnership (Form LP-1) with the Secretary of State to set up an LP.

General Partnership (GP) – to form a GP in CA you must have two or more people who own the business. Generally speaking, all of the partners are jointly liable for the debts of the business, although the details in this regard may change depending on the nature of a given claim and the desires of the claimant. Profits are taxed as personal income of the owners. (Like with an LP and Corporation, it is best talking to a lawyer before setting up a GP.) To register a GP in CA, you will need to file a Statement of Partnership Authority (Form GP-1) with the CA Secretary of State; however some GPs don’t register at the state level at all.

Limited Liability Partnership (LLP) – LLPs are partnerships that work in specific industries such as public accounting, architecture, engineering, law, and land surveying, or that provide services to a CA registered LLP that practices public accountancy or law, or to a foreign LLP. LLPs are required by law to maintain certain minimum levels of insurance. To register an LLP in CA you must file an Application to File a Limited Liability Partnership (Form LLP-1) with the CA Secretary of State.

Step 2: Is The Name I Want for My Business Available?

A quick preliminary (but not final) search for a business name’s availability in CA can be done through this link. You can also do a trademark search with US Patent and Trademark Office and do a simple Google search to see if anything comes up with the name you want. Next, follow this link to read the name availability section of the CA Secretary of State website which has lots of relevant information.

A couple of other things to keep in mind (more detail is available on the Secretary of State website noted above):

  • A name for a corporation can be used if it isn’t the same as or too similar to an existing name recorded with the California Secretary of State or if the name is not misleading to the public.
  • A name for a limited liability company can be used if it is unique on the records of the California Secretary of State or if the name is not misleading to the public.
  • A name for a limited partnership may be adopted if it is unique on the records of the California Secretary of State.

Setting Up a Business in Orange County, CA

Step 3: Obtain a Federal Employer Identification Number (FEIN or EIN)

An EIN (federal employer identification number) is used by the federal government when taxing businesses and is basically the business version of a social security number. Corporations, limited liabilities companies, and partnerships need EINs. Sole proprietorships may not need one, depending on the type of business they are engaging in. To find out if you need EIN, start with the IRS webpage entitled: Do I Need an EIN?

Even if you don’t technically need one you may want to get one anyway. Why? Using an EIN instead of your social security may protect you from identity theft. If you work as an independent contractor you may have to provide either your social security number or EIN to your clients, and the more people that know your social security number the greater the risk of fraud. Having an EIN also indicates to clients that you are an independent businessperson rather than an employee, which they may prefer, and also may be required to set up a business bank account. (Which you likely will want to do.)

Getting an EIN is fast, easy, and free. Just use IRS EIN Assistant. In order to complete the process you will need the following information:

  • The mailing address and street address associated with the business.
  • The legal name of the business or individual, and the trade name, if you have one.
  • If the business is a corporation, the state or country where it was incorporated.
  • The type of business you are forming.
  • The main activities the business will engage in.
  • The reason you are applying.
  • The social security number of the ‘responsible party’. (If the responsible party is also a business entity than its EIN will be used.)
  • If the business is an LLC, the number of members.
  • The date the business was started or acquired.
  • The date when wages were paid the first time. (If there have been any wages.)
  • The greatest amount of employees you anticipate having over the next twelve months.

Step 4: Apply for the Relevant Permits and Registrations

Depending on the type of business you will be engaging in and where you are located you may need a wide variety of permits and/or registrations. A great place to start is CalGold, with the CA Governor’s Office of Business and Economic Development. After that be sure to check with your county and city governments to make sure you aren’t missing anything.

Tips on How to Register Your New Business With the CA Government

Step 5: Setup Applicable Bank and Credit Card Accounts

Setting up a bank account and credit cards used solely by your business can help to keep your business and personal finance separate. (This is true whether you are setting up a business in Orange County or anywhere else!) This can make it easier to track your business activities which will help you to stay organized, facilitate strategic decision making, and make things a lot easier come tax time. (Having a good bookkeeper – like My OC Bookkeeper can help a lot with these things too. Give us a call!) The accounts can also help you to establish a credit history for your business, which can be helpful if you ever want to set up lines of credit or qualify for business loans.

Opening the accounts often requires an EIN, copies of your business licenses, and a document signed by the business owners saying that you are authorized to open them. The U.S. Small Business Administration has some great information on specific things you are likely to need depending on the type of business structure you have.

Step 6: Satisfy Ongoing Requirements of Business Ownership

After successfully setting up your business there are some important things to remember:

  • If you setup a fictitious business name, i.e. dba, you will have to renew it every five years.
  • Corporations and LLCs in CA have to pay at least $800 in franchise tax every year. Learn more about this from the CA Franchise Tax Board.
  • If you setup an LLC you will have to file a Statement of Information every two years.
  • If you setup a Corporation you will have to file a Statement of Information annually.

Useful Websites for When You Are Starting a New Business

California Resources

California Secretary of State – if you are starting a business in CA, this is the place to start. Important information on all kinds of topics.

California Governor’s Office of Business and Economic Development – the parent site for the CA Business Portal. A wider array of topics and resources, but a great place to learn about business and economics in CA.

California Franchise Tax Board – they handle personal and corporate income tax in California.

California Tax Service Center – a government created website designed to help you navigate the confusing world of taxes. A good supplement to the CA Franchise Tax Board site.

The California Green Business Network – a certification service for green businesses in CA.

California Chamber of Commerce – a nonprofit advocate for CA businesses. You can find wide ranging resources ranging from updates on business related legislation to compliance tips to information on human resources, among other things.

Federal Resources

IRS – The internal revenue service. Take a look for info on federal taxes.

U.S. Small Business Administration – great tips on starting a business from the federal government.

There you have it. My OC Bookkeeper’s guide to setting up a business in Orange County, CA. Do you have any follow up questions? Are you interested in starting a new business but haven’t spoken to a bookkeeper or business strategist? My OC Bookkeeper is the best bookkeeping, tax, and business strategy expert in Orange County, CA, and Southern California for that matter. (Possibly America.) Take a look at our website. Enjoy our extremely educational blog. And reach out to us. Let’s do great things together!

Finally, take a look at the video below for some great information on starting a business in CA , or checkout our YouTube channel for more great content.