Step-by-Step Guide: How to Set Up Your LLC in California | Expert California LLC Formation | BetterLegal

Learn how to establish your LLC in California hassle-free with our comprehensive guide. Follow our step-by-step instructions and expert tips to navigate the process of forming your LLC. Get started today!

Are you considering setting up an LLC in California? BetterLegal has developed a complete yet concise guide to help you through the process through our years of experience. The five critical steps to properly set up an LLC in California in order are:

1. Prepare by choosing a Name and Registered Agent
2. File Certificate of Formation with the State of California
3. Apply for an EIN with the IRS
4. Obtain an Operating Agreement
5. Handle Ongoing California Compliance and Maintenance

What are the benefits of setting up an LLC in California?

An LLC (Limited Liability Company) is a fairly new business structure which combines the best aspects of two older structures. Corporations have existed since before the US existed, but require heavy maintenance such as quarterly meetings with officially recorded minutes, board approval and distribution of ownership, and more. On the other side of the spectrum is a sole proprietorship (or partnership if more than one person) that possesses tax benefits, but doesn't provide the owners with liability protection.

Combining the liability protection of a corporation and the tax benefits of a partnership, LLCs were created and slowly adopted by all 50 states between 1977-1998. This means that, as the owner of an LLC, you are not personally liable for any debts or obligations of the business. This can be a crucial safeguard for a sole proprietor, as transitioning to an LLC protects your personal assets, such as your home or savings, in the event that the business is sued or faces financial difficulties.

In addition to liability protection, an LLC helps establish credibility for your business. When you officially register your business as an LLC, you are signaling to the public that you are a professional and legitimate operation. This is especially important for a sole owner of a business as customers have more options than ever and are more likely to choose a company that feels more trustworthy. Any credibility you can build with your future customers is extremely important.

1. Choose a Name and Registered Agent in California

The first step in setting up an LLC in California is choosing a name for your business. The name you choose will represent your company and be used on all official documents, so it's essential to take the time to carefully consider your options.

It may seem tempting to have a very specialized name like "Irene's California Ice Cream." However, if you're still iterating on your business offering or may expand, a somewhat generalized name may work in your favor. Don't fret too much as you can always change a California LLC's name or use a nickname by filing a California DBA. More on those post-formation options can be found under Step 5: Changes and Maintenance.

It's important to choose a name that is unique and not already in use by another business. You can use the California Secretary of State's name check service to verify the availability of your desired LLC name. If you are having trouble accessing the name check service, you can also call the California Secretary of State.

When choosing a name for your LLC, it's important to keep the following guidelines in mind:

1) Business entity names must use the English alphabet or Arabic numerals (0, 1, 2, 3, 4, 5, 6, 7, 8, 9) or symbols as listed in Section 21002(b) or a combination thereof. For purposes of determining whether a proposed name is distinguishable from an existing name, letters of the English alphabet shall not be interpreted as Roman numerals and will not be considered to have numeric value.
2. For the purposes of determining whether a proposed name is the same, deceptively similar to, substantially the same as, or distinguishable from an existing name:
- No distinction between upper and lower case letters, typeface or font will be recognized.
- Accent marks above letters and other English language diacritics will not be recognized.
- Subscript or superscript characters will be treated as standard characters and will not appear above or below other characters in a business entity name.

When choosing a name, it's also important to consider available domain names and social handles. One of our early customers owned austineventcollective.com as well as austineventcollective across every social platform. Unfortunately, someone in California already had a registered "Austin Event Collective LLC" and rejected her filing.

If you’re not ready to file, it is possible to reserve your California LLC's name before officially registering your LLC with the California Secretary of State. Please note that this is an additional and separate cost from officially filing your LLC and only holds the name, so you have to decide whether reserving a name for a few months is a better option than simply setting your Effective Start Date for the future (more on this in Step 2).

Choosing a Registered Agent

The next step in setting up an LLC in California is choosing a registered agent. This person or entity will be responsible for receiving official mail from the State of California and legal documents on behalf of your business.

The Registered Agent must have a physical street address in California. (Do not list a P.O. Box address.)

It's worth noting that this information is considered a public record and may be accessed by anyone. This means that anyone can view the names and addresses of the managers or members of your LLC by requesting a copy of your Articles of Organization from the California Secretary of State. If you are concerned about privacy, you may want to consider using a third party to act as a registered agent for your LLC rather than using your own personal information. This step helps protect your operator's and owner's privacy and shield your personal information from public view.

There are countless options for Registered Agent Service, but we believe BetterLegal provides the best value. Click here to sign up.

Some additional guidelines in California for Registered Agents:

1) The Registered Agent must be located in CA; if a business, must be registered in CA as a Registered Agent

BetterLegal has helped tens of thousands of business owners across the US set up their LLC. Sign up today to start yours!

Prepare and File the California Articles of Organization

Once you have chosen a name and registered agent for your LLC, you'll need to file the Articles of Organization with the California Secretary of State for a fee of $0 (if filed online, only from July 1, 2022 to June 30, 2023) $15 (if filed in person) which is refundable and provide a digital, scanned, or wet signature of the organizer.

Filing Options

1) Online: Go to https://bizfileonline.sos.ca.gov/ and complete the steps.

2)In-person: Submit to CA Secretary of State’s Business Programs Division filing counter.

Payment Options

1. Visa/Mastercard (American Express not accepted)

Turnaround Time

The turnaround time for LLC formation in California is advertised by the Secretary of State as one (1) to two (2) business days from the date of submission. Keep in mind that this can take longer based on state examiner’s workload at the time of filing. BetterLegal's internal experience with California is two (2) to three (3) business days from the date of payment receipt, as long as the filing request was received during BetterLegal's operating hours (Monday to Friday from 9 a.m. to 7 p.m. EST). There are two options: 24-Hour Expedited Service and Same Day Service. The 24-Hour Expedited Service costs $350 in addition to the processing fee. Through this option, filing response is guaranteed witthin 24 hours. Meanwhile, Same Day Service costs $750 on top of the processing fee. Using this option, filing response is guaranteed by 4:00 p.m. the same day, as long as the document is received by the Secretary of State by 9:30 a.m.

Please note that the Secretary of State's office in California is closed on weekends and state holidays. The office is open from 8:00am to 5:00pm, Monday through Friday.

Also note, that you should not apply for an EIN (Step 3) until California has approved and delivered your Articles of Organization in case your LLC's name is rejected.

Setting a Future Effective Date

If you want to set a future "start date" for your LLC, this the date when you submitted your LLC application or a future effective date that may not be more than ninety (90) days from the date of filing. in the State of California.

Address Requirements

In California, you're required to provide Principal Office Address, Mailing Address, Agent Service of Process Address If you want your address information to be private rather than public record, make sure your Registered Agent allows for all addresses. BetterLegal's $90/year service provides full privacy.

State's Mailing Address: Mailing address can be the same as Principal Office Address/Registered Agent Address Can be a PO Box or PMB

Manager Information

The Manager's Information section of your LLC's Articles of Organization may include the names and addresses of the managers or members of your LLC. Here is extra information California will want to know about your Managers:

1) Management Type - Is your LLC manager-managed or member-managed?

2) Manager's Name - It may be an individual or non-individual manager. Managers may be individuals, partnerships, corporations, and any other type of legal entity. However, for non-individual managers, there must be an authorized representative to sign the LLC's articles of organization.

Note: Only one signer (otherwise, the process will be longer)

Receiving your documents

After the Articles of Organization has been filed and accepted by the California Secretary of State, the LLC is officially formed. Here's what California will provide back to you based on your method of submission: By email (within 48 hours)

The official deliverables will include: the following documents:
1) Plain copy of the approved Articles of Organization
2) Universal Welcome Letter provided by the State
3) Business Entity Filing Acknowledgment Letter

You should keep a copy of the Articles of Organization for your records and use it to open a bank account, apply for business licenses, and conduct other business.

What if my filing is rejected?

If your filing is rejected, you'll receive information from the California Secretary of State explaining the reason for the rejection. You can then make the necessary corrections and resubmit your documents. Refile using the link provided by the state (do not file anew since fees are non-refundable and considered vacated after 30 days of non-refiling)

Additional information

Need to file CA SOI within 30 days from formation filing (to provide specific information about the managers)

Apply for an EIN from the IRS

Obtaining an Employer Identification Number (EIN) is a crucial step in starting an LLC in California because banks require it to open a business bank account and the IRS requires it to pay taxes. So if you plan on making money, you'll need one. You don't need to employ anyone to need an EIN, it's simply a poor name choice by the IRS for what is essentially your LLC's Social Security Number or Tax ID.

An EIN is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to identify a business for tax purposes and formatted as 12-3456789. EINs are free to get from the Internal Revenue Service's website, but can be tricky if you're not careful when answering their questions.

An EIN is a Tax ID for the federal government, it is not your Tax ID for the State of California.

Here are some key points to keep in mind when obtaining an EIN for your LLC:

1. A Sole Proprietorship's EIN cannot be transferred to your California LLC.
2. A Manager or Member must provide their personal information to link the EIN to your California LLC.
3. You cannot use an existing business' information for an EIN since a business doesn't have a Social Security Number.
4. If you're not a US citizen that is in possession of an SSN, you will need to first obtain an ITIN before applying for an EIN through a paper filing.
5. Once the EIN is obtained, it must be included on all federal tax returns and other documents that require the business's tax identification number.
6. Keep a copy of the EIN confirmation letter for your records.

It's important to note that the EIN is for tax purposes only and does not give any rights or privileges to the holder.

The turnaround time for an EIN is instant and the fee is $0. However, the IRS’ website that generates EINs only works normal business hours EST, so it’s a good idea to plan ahead if getting this item is time sensitive. Also note, that you should not apply for an EIN until California has approved and delivered your Articles of Organization in case your desired business name is rejected.

Obtain an Operating Agreement

An operating agreement is an important document for any LLC, as it lays out the rights and responsibilities of the members (owners), as well as the management structure of the LLC. It's not a mandatory document filed with the State of California, but it's highly recommended to have notarized as it can help prevent disputes and misunderstandings among members later on.

While it's your preference to decide whether the California LLC is manager-managed or member-managed, BetterLegal prefers to set up LLCs as manager-managed since an individual can be both a manager and a member. If a manager/member wants to become passive at a later stage of the company and the Operating Agreement is set up as member-managed, then it opens up a can of worms that could have been avoided by retaining the separation of duties from the beginning.

Here are some key points to keep in mind when creating an Operating Agreement for your LLC:

1. Identify the members of the LLC and their respective ownership percentages.
2. Outline the decision-making procedures, such as how many members must be present for a meeting to be considered quorate and how many votes are required to pass a resolution.
3. Specify the process for admitting new members or removing existing members.
4. Include information about how profits and losses will be distributed among members.
5. Set out the procedures for amending the Operating Agreement and dissolving the California LLC.

This is an important document for a California Limited Liability Company and is too often overlooked or skimped on. If setting up a single-member LLC, be wary of professionals that charge hundreds or thousands of dollars for a single-page document. We have seen attorneys charge $3500 for a simple document providing zero ability for supporting multiple owners in the future. While you may start as a sole owner, that may not always be the case. It's best to plan ahead during these early phases before the grind of entrepreneurship sets in.

We've also seen instances where an individual helping with the business early on later claims ownership upon the business' later success. Never refer to someone paid or unpaid as a "partner" in public, especially if you don't have a signed and notarized Operating Agreement in place.

If you're setting up your California LLC on your own and need an Operating Agreement, BetterLegal can provide one for a reasonable fee.

The Operating Agreement should be reviewed periodically and updated to ensure that it accurately reflects the current state of the California LLC.

BetterLegal has helped tens of thousands of business owners across the US set up their LLC. Sign up today to start yours!

State Compliance and Maintenance

As an LLC in California, you'll need to comply with certain California regulations.

This includes, but not limited to:

1. Obtaining any necessary licenses and permits
2. Keeping records of your business's financial transactions
3. Staying on top of California's Biennial Statement of Information
4. Notifying the State of changes to your LLC

Commonly Asked Questions

Can I file an LLC in California myself?

You can file an LLC in California yourself by visiting the California Secretary of State's website and submitting the necessary paperwork and fees. The process involves filling out the Articles of Organization and paying a filing fee. Additionally, you will need to choose a unique name for your LLC and appoint a registered agent for your business. Once you have completed the necessary steps and paid the filing fee, you can submit your application to the state for review and approval.

How much does it cost to file an LLC in California?

The cost to file an LLC in California is $0 (if filed online, only from July 1, 2022 to June 30, 2023) $15 (if filed in person). This fee is for filing the Articles of Organization with the state and is refundable. You may also need to pay additional fees for obtaining a registered agent or for expediting the processing of your application.

Can you file an LLC in California for free?

No, there is a fee to file an LLC in California. The fee for filing an LLC is $0 (if filed online, only from July 1, 2022 to June 30, 2023) $15 (if filed in person) and is refundable. You may also need to pay additional fees for obtaining a registered agent or for expediting the processing of your application.

How fast can you get an LLC in California?

The turnaround time for LLC formation in California is advertised by the Secretary of State as one (1) to two (2) business days from the date of submission.. This turnaround can take longer based on state examiner’s workload at the time of filing.

Can I file for an LLC in California Online?

Yes, you can file for an LLC in California online through the California Secretary of State's website. The process involves filling out the Articles of Organization, choosing a unique name for your LLC, and appointing a registered agent. Once you have completed the necessary steps and paid the filing fee, you can submit your application to the state for review and approval.

What is the minimum number of members in a California LLC?

The minimum number of members in an LLC is one. An LLC can have any number of members, and the members can be individuals or other entities such as corporations or other LLCs.