California is one of the largest economies in the world. When it comes to starting your own business, the Golden State has a lot to offer. Along with that, though, comes a maze of government requirements that can be confusing. When you’re trying to form an LLC, it can be hard to know where to begin.
A lot of people have traveled down this road before you. Californians have many resources and people to help you get your business started and hit the ground running.
In this article, you’ll find all the information you need to start an LLC in California, including:
- Tips on drafting and filing the documents you need for your California LLC formation
- Guidelines for staying within state and federal law
- The actual laws and rules you need to follow
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Step 1: Name Your California LLC
Before you can start, you have to choose a name for your California limited liability company. You have a lot of options here, but California requires you to use certain words. It also forbids you from using other words, including words for businesses that an LLC can’t operate.
Words You Have to Use
California Corporations Code section 17701.08 contains the rules for naming your LLC. First, your business name must include the words “Limited Liability Company.” That might seem like a mouthful, so thankfully, the law does let you abbreviate that to “L.L.C.” or “LLC.”
If you like, your company name can also abbreviate the word “Limited” as “Ltd.” or “Company” as “Co.”
The business name you pick must also be distinguishable from the names of other entities doing business in the state. Thus, if your chosen name is so similar to another company's that it might lead the public to confuse the two, you'll have to add words that make it just different enough.
Let's say that you want to open a beauty salon with a company called “Hollywood Hairdos, LLC.” When you run a name search, though, you find a California corporation called “Hollywood Hairdos, Inc.” Even though it's a corporation, it's too similar to the name you want. You're going to have to make your LLC name different.
A good way to do this is by adding words. If you add words to your desired name and make it “Hollywood Hairdos and Nail Art, LLC,” that will probably be okay.
Keep in mind that whether an LLC’s name is “distinguishable” from others is a judgment that is left to the Secretary of State. If they say you have to change your name, then that’s what you have to do.
Words You Can’t Use
One of the unique things about California is that there are certain businesses an LLC can’t run.
Corporations Code section 17701.04 forbids an LLC from being in these businesses:
- Issuing insurance policies or insuring any kind of risk
- Trust companies
You can’t use any words in your company name that imply you do business in any of these areas. You also can’t give your LLC a name that implies it is a non-LLC business entity.
For reference, the statute specifically gives these examples of prohibited words:
- Insurance company
- Incorporated or the “inc.” abbreviation
- Corporation or the “corp.” abbreviation
Your LLC also can’t have a name implying that it provides professional services if no one in your company is licensed to provide them. So, for example, you can’t open “Joe’s Law Firm LLC” if you’re not a lawyer.
The big rule is this: if you need a license to do your job, double-check with the Secretary of State to make sure your company name complies with the law.
Research the LLC Name You Want
Now that you know what you can legally name your business, you need to make sure your chosen name isn’t already taken. While this means you can’t copy any name of another business formed or doing business in California, it also means your name can’t be too similar to the names of any of those companies.
Check the California Secretary of State’s website to make sure that the business name you want for your company isn’t already taken by somebody else. While you are there, you should also search for the different words in your company’s name to make sure the public can distinguish between your LLC and companies with similar names.
Get a Matching Domain
Once you settle on an LLC name, we recommend you get a matching domain, even if you don’t have immediate plans for a website.
Competitors can buy your perfect domain and its variations to block you from using them.
Domain squatters sift through public records of newly registered LLCs and will buy their matching URLs, only to relist them with huge markups.
A domain name from GoDaddy.com or a similar registrar will cost you between $20 and $50 per year, with regular specials and sales where you can get large discounts.
It pays to check now.
Once you have your domain name, you can also create a branded email address through GoDaddy.
California DBA: Using a Fictitious Business Name
Sometimes, the name that is listed on your LLC’s formation documents is not the name you want hanging on the sign outside your office. Maybe it is too long for customers to remember. Or maybe there is another shop with a similar name, and you don’t want the public to get confused.
In those cases, you will want a fictitious name, also known as a DBA (doing business as) name. Fortunately, this is a very common issue, and it can be solved pretty easily. California Business and Professions Code sections 17900 through 17930 give the rules for choosing a DBA name.
Once you have decided on a DBA, you will have to file a statement with the clerk of the county where your LLC does business. (If you work in multiple counties, you will need to file in each county clerk’s office.) A form statement is provided in Business and Professions Code section 17913.
Your county will probably have its own DBA forms as well. For example, see San Francisco's form here.
Step 2: Appoint a Registered Agent for your LLC
California LLCs are required by Corporations Code section 17701.13 (a)(2) to pick a registered agent for service of process.
Service of process is a legal term for business letters or legal papers. In other words, your agent is there for the state or the public to communicate with you.
If your LLC is ever in a lawsuit, your agent will be the one that gets the papers. If people suing your LLC can’t find your California registered agent, they could get a default judgment against you. In other words, your LLC could lose a lawsuit without even walking into court.
There are lots of things to think about when picking your agent. Some business owners serve as their own agents. More experienced people, though, hire registered agent companies. The office of the company, then, is the place for all service of process and other correspondence.
Starting a business is expensive, and you might be tempted to save money on a registered agent by doing it yourself for a few reasons:
- It’s cheap: You’re not paying someone for something you can do yourself.
- It’s simple: The only address and contact information you have to keep current is your own.
- It’s reliable: You will receive all important documents personally.
Before you make that decision, though, consider the downsides of being your own registered agent:
- No privacy: Your name and address will be published on the Secretary of State’s website.
- Junk mail/spam: You will get a ton of junk mail in addition to a small amount of real mail and any service of process.
- No breaks: Agents must be open for service during all business hours. They don’t get time off.
- Business interruptions: If your agency address is the same as your business address, your clients may be interrupted by people serving lawsuits. That could be embarrassing or hurt your reputation.
- It’s your fault if you miss something: You always have to make sure your agency address is correct and up to date. If you make a mistake or miss something, that’s on you.
A professional registered agent service helps you avoid these pitfalls for a modest fee, usually $100/year. Their name and address, not yours, are listed on the Internet. Depend on your agent to make sure you don’t miss anything. That way, you can focus on your business.
If you are looking for a professional registered agent service, take a look at our Best Registered Agent ranking for some of our recommendations.
A registered agent service can also be useful if you plan on registering as a foreign LLC in other states. You can find a company that does business in all those states and pay them a single fee for multiple agents and offices.
Under California Corporations Code section 17701.13, your California registered agent can be a person or a corporation. (The latter often happens when you use a professional registered agent.) If it is a corporation, you do not have to set forth a separate address for your agent in your filings with the Secretary of State.
Step 3: File Your California LLC Articles of Organization
Of all the steps that you have to take to form a California LLC, the most vital is filing your articles of organization.
Corporations Code section 17702.01(d) says it all: your LLC is formed when you file the articles of organization. They are like your LLC’s birth certificate. They prove that it exists and can do business.
If you would like to avoid the hassle of handling your LLC filing yourself, you can also use a professional LLC formation service. Check out our Best LLC formation services article for some of our suggestions.
What to include in my California Articles of Organization?
Section 17702.01(b) of the Corporations Code requires you to include these things in your LLC’s articles:
- What your LLC was formed to do. This can be stated as “any lawful act.”
- The name of your LLC. Make sure this complies with Corporations Code section 17.701.08, as discussed in Step 1 above.
- The street address for your LLC’s office. Also, include the mailing address if it is different.
- The name and street address of your registered agent for service of process. If the agent is a corporation, you only need to include the name.
- A statement of how your LLC will be managed. The articles must say whether the LLC will be managed by its members and/or will have only one manager.
The Secretary's website contains a simple form (PDF) you can use to make sure that your articles have all of the necessary information.
California LLC Filing Fee
When you file your articles, you must pay a $70 filing fee to the California Secretary of State. You can find a complete fee schedule on the Secretary's website.
California LLC Processing Time
California is the largest state in the nation, and therefore it shouldn’t surprise you that the Secretary of State is very busy. In normal times, the processing time for LLC articles of organization can be 3-5 business days. Between December and January, the process typically takes longer, around 6-7 business days.
Keep in mind, though, that the office’s output is also dependent on external factors. After the COVID-19 pandemic hit in 2020, the Secretary of State’s processing time increased and has yet to return to pre-pandemic levels. As of January 2022, the Secretary of State reports the following processing times for LLC formation filings:
- By mail: 5-9 business days
- In-person filings: 5-9 business days
- Filings completed with the Secretary’s e-forms: 5-6 business days
- Online filings: 2-3 business days
If you can’t wait that long, the Secretary of State can speed up the process in two ways: (1) preclearance service and (2) expedited filing service.
You can take your articles of organization to the Secretary’s Sacramento office in person, and the staff will review them to tell you if they look okay before you file them. Having this “preclearance response” in hand gives you an official statement that your articles will be approved and minimizes the chances of delay due to filing mistakes.
There are four levels of preclearance service (PDF), depending on when you need a response from the Secretary of State:
- Class I service ($500): you will get a response within 24 hours.
- Class II service ($400): you will get a response within 72 hours.
- Class III service ($300): you will get a response within 5 business days.
- Class IV service ($250): you will get a response within 10 business days.
Expedited Filing Service
Whether or not you get preclearance, expedited filing service helps you to shortcut the waiting times you get when you file your articles normally. As with preclearance service, you must file in person if you want expedited filing service.
There are three levels of expedited service (PDF) available:
- Class A service ($500): you will receive a filing response within 4 hours. You must have preclearance approval to use the Class A service.
- Class B service ($750): you will receive a same-day response (by 4:00 p.m.) as long as you submit your articles no later than 9:30 a.m.
- Class C service ($350): you will receive a response within 24 hours of filing your articles.
Yes, Class B service is more expensive than Class A due to the preclearance requirement for Class A.
The Sacramento office is the only one that processes expedited filing service requests. You must go to the public counter located at 1500 11th Street, Room 390, on Monday through Friday from 8:00 a.m. to 5:00 p.m.
Step 4: Draft your California LLC Operating Agreement
Your California LLC must have an operating agreement. California is one of the few states that require LLCs to have operating agreements.
Though you do not have to file this operating agreement with the Secretary of State, Corporations Code section 17701.13 does require you to keep a copy at your company’s office.
Think of your operating agreement as the LLC’s user manual. It tells you what the rules are. It also states what duties the managers and members have to each other, how new members can buy in, and how old members can leave. A good operating agreement should have rules for every situation you can think of.
Oddly, California law does not mandate that operating agreements be in writing. We strongly urge you to write them out anyway. The whole point of having an operating agreement is that it sets down the rules for your LLC, especially if something bad happens.
Let’s say that your LLC has a manager who stole money from the company. How do you fire him? The agreement will set forth how he should have acted and what happens next. If you just had an oral contract with the other LLC owners when you opened up shop, it will be impossible to enforce that agreement.
Written operating agreements can do many things for your business:
- They outline what the LLC is legally able to do. The operating agreement should also set down how the company is allowed to conduct its business from day to day.
- They say what the manager has the right to do. Managers also have special duties to the company and the members. The operating agreement should state these.
- They determine the rights and duties of LLC members. If one LLC member is responsible for running the business or managing the books, the operating agreement should say so.
- They say how new members can join the company. They also have rules about how existing members can leave or how they can transfer their interest to someone else.
- They set down how and when profits are paid to members. They can also create different types of membership and payment schemes.
- They say whether members or managers are in charge. They also say how to hire and fire managers.
- They say how and under what circumstances the LLC should end. You might not want to dissolve your business now, but you might in the future. It’s best to think about it and plan before it becomes an issue.
- They say how to change the rules. You may need to amend your operating agreement in the future. The operating agreement should set down the rules for making changes.
If you don't take the time to create a written contract, you are leaving the future of your LLC to chance. Courts will apply the law to determine the results of any disputes or issues that arise, and the results may not be what is best for your company. It's thus vital that you think about how you will deal with these issues before they arise and get them down in writing.
Step 5: File Statement of Information
California LLCs must also file a statement of information within 90 days after the articles of organization. After that, you have to file a new statement every two years.
The statement contains some of the same points in your articles of organization, but you do need to include more detail. This law is here to make sure all California LLCs regularly report vital information to the California Secretary of State. That way, the state can make sure they all follow the law.
Under California Corporations Code section 17702.09, you must include these items in every statement of information:
- The name of your LLC and the Secretary of State’s file number for your LLC. You should have obtained the 12-digit file number when you filed your articles.
- The current name and street address of your registered agent for service of process. If your agent is a corporation, just the name will do.
- The street address for your LLC’s main office. If your mailing address is different, you need to include that too.
- Names and addresses (business or residential) of all managers and the CEO, if any. If your company doesn’t have a manager or CEO, you have to provide the name and address of each LLC member.
- An email address for the LLC or its agent. You only need this if you wish to receive renewal notices or other Secretary of State correspondence by email.
- Your LLC’s main business. You need to describe what your LLC does. Do you run an auto body shop, a law firm, a bakery, or something else?
That may sound like a lot, but the state has made it easy by providing a form, known as LLC-12 (PDF), where you can fill in the blanks.
Once you have filled in the blanks, you must pay a $20 filing fee to the California Secretary of State. This state fee applies to both the original filing (within 90 days of formation) and every biennial filing after that.
Statement of Information vs. Articles of Organization
You may be wondering how a statement of information differs from articles of organization.
Apart from the fact that the statement is slightly more detailed, its legal use is distinct. The articles are a historical record. Though they can be changed, they do not have to be, and amendments relate back to that initial filing.
The California statement of information, on the other hand, is designed to give notice to the state and anyone searching the records of the most up-to-date information about your LLC, including any changes to ownership and management. Regularly filed statements also give the public notice when those changes happen.
Step 6: Get an EIN (Employer Identification Number) for Your California LLC
When you pay your federal income tax, the IRS identifies you with your social security number. An EIN serves the same function for your LLC. It’s a unique number that you will need when paying any taxes related to the LLC.
Not all LLCs need an EIN. Here is a quick checklist to see whether you need one:
- Does your LLC have more than one member?
- Does your LLC have any employees?
- Is your LLC taxed as a C corporation or S corporation?
If the answer to any of the above questions is yes, you need an EIN for your company. Also, note that most banks will require an EIN to open a bank account for your LLC.
Fortunately, getting an EIN is easy. Just visit the IRS’s website, where you can apply online. The entire process will take around five minutes. Alternatively, you can also file IRS form SS-4 via mail or fax.
You should never pay anyone to get an EIN for you unless they are doing it as part of a more complete service package.
First Tasks After Registering your California LLC
So, the state has approved your articles of organization, and you’re ready to go. Before you start the hard work of running your business, there are a few more things you should handle that will make that work easier.
Open a Business Bank Account
Your LLC needs its own bank account. You likely don’t want to spend hours at the bank, but there are several good reasons to do it:
- Accounting: You’re doing this to make money. You can’t tell if you’re making money unless you know how much your company spends and makes every month.
- Credit: Even successful companies need to borrow money. You don’t want to use your own credit, though, for a business expense. Keeping your company’s money separate helps build up company credit that it can use for its own purposes.
- Personal Asset Protection: Keeping your own money separate is the whole point of even forming an LLC. Without a business bank account, you risk losing that protection.
Accounting is vital to any business. If you use your personal bank account to hold business funds, it will be hard, if not impossible, to see your bottom line. Banks prepare account statements every month that you should review and import into your business books. If that money is tied up with your personal money, though, you can’t keep accurate books.
You should also think about what will happen if, in the future, your LLC has to draw on credit. A few years down the road, you might need to make improvements, sign a new lease, or invest in new technology. When that time comes, the LLC should do the borrowing, not you.
Finally, don’t forget about the legal purpose of separating business and personal funds. As an LLC member, you are protected by something called the corporate veil. This is a legal way of saying that, because you and your LLC are legally distinct, you can’t lose your personal assets if the company gets sued or goes bankrupt.
The corporate veil only works, though, if you keep your business and personal assets separate. If you mingle the funds or start using the business assets for yourself, you might lose the legal protection of your LLC.
Of course, liability protection is one of the main reasons for forming an LLC in the first place. So, make sure you get a separate bank account as soon as possible.
Get Business Insurance For Your California LLC
Just like you protect your home and your car, you also need to protect your business by getting the right policies. You need to think about getting several, including:
- General liability insurance: You’ll need this if there's an injury on your property. It pays for damages and a lawyer if you need one.
- Commercial automobile insurance: This works like your own car insurance. It covers drivers and vehicles for your business.
- Workers compensation insurance: If your LLC has even one employee, California law requires you to have workers’ compensation insurance. (Keep in mind, though, that in most cases, LLC members can be excluded from this requirement.)
- Commercial property insurance: This protects your property in the event of damage. Keep in mind that flood insurance is often a separate policy.
- Professional liability insurance: Lawyers, doctors, architects, and other professionals need this insurance. It provides coverage and legal defense in the event of a malpractice case.
- Business income insurance: If you have to close for some time, business income insurance can pay back the loss of income. Policies vary, though. Make sure that you know exactly what kinds of losses will be covered.
Keep Your California Company Compliant
Once you’ve started on the right foot, you shouldn’t have to worry about the legal status of your LLC on a day-to-day basis. You should still stay on top of the legal issue affecting your LLC, though. Here are some things you should put on your calendar for regular follow-ups.
California Business Permits and Licenses
Even though you have registered your business with the state, your city or county will likely want you to have a business license as well. Check with your local government regarding what you need.
Also, check whether you need a professional license from a state agency. Lots of businesses need them, including lawyers, barbers, and contractors. Make sure you do your research and get the right approvals ahead of time.
California Tax Requirements
Your LLC is a pass-through entity. In other words, it doesn’t pay taxes directly. Instead, income passes to you, and you will pay the taxes to the state. For more information on how this is reported and calculated, visit the California Franchise Tax Board website.
Also, keep in mind that if your LLC has employees, you are subject to employment taxes and will have to register as a California employer. Retailers will also have to register for and pay California's sales and use tax.
Federal LLC Tax Filing Requirements
Your LLC is also considered a pass-through entity for federal tax purposes. Profits or losses from your LLC should be on Schedule C of your personal tax return.
Annual Report and Franchise Tax Requirements
In California, the “annual report” filed by an LLC is really biannual: the statement of information discussed above.
According to the Franchise Tax Board, LLCs must pay an annual tax of $800. If your LLC makes more than $250,000 in a year, congratulations. But you will also have to pay an extra fee based on how much money you made. Consult your accountant and remember to file an Estimated Fees form 3536 (PDF) once you have an idea of what your fee will be.
California Business Formation Quick Links
- California Department of Tax and Fee Administration — Sales and Use Tax
- California Form LLC-1 (Articles of Organization)
- California Form LLC-12 (Statement of Information)
- California Franchise Tax Board — information regarding LLCs and state income tax
- California Governor’s Office of Business and Economic Development
- California Office of the Small Business Advocate — Professional Licensure Guide
- California Revised Uniform Limited Liability Company Act (General Provisions)
- California Revised Uniform Limited Liability Company Act (LLC Formation)
- California Secretary of State Business Entities Fee Schedule
- California Secretary of State Business Search
- California Secretary of State — Current Processing Dates
- California Secretary of State — Preclearance and Expedited Filing Services
- City and County of San Francisco — Form DBA Statement
- Internal Revenue Service — apply for an EIN online
- IRS information regarding the federal tax treatment of LLCs
California LLC FAQs
How much does it cost to start a California LLC?
It costs $70 to file your articles of organization. Faster service and preclearance approval are available, but they also cost more.
What is the processing time to form my California LLC?
Currently, the normal processing time by mail is 5-9 business days. If you use online filing, you can shorten that to 2-3 business days.
What are the benefits of a California LLC?
A California LLC protects your personal assets while giving you favorable tax treatment. It is also a flexible entity that you can customize with an operating agreement.
Where do I check if my California LLC name is available?
Use the business search on the California Secretary of State website. Make sure that you run a few searches to make sure that there are no company names that, while not being identical, might be too similar to your proposed name.