A Limited Liability Company is a business model that combines the aspects of a sole proprietorship or partnership and a corporation. For this business model, owners are protected from personal responsibility for the companies’ liabilities and debts.
Starting an LLC company in California requires administrative work and a legal framework. This article gives you a step-by-step guide and the resources necessary to get started.
|LLC Filing Fee||$70||$425||$100||$50||$130.38|
|LLC Annual/Biennial Fee||$800 (every year) + $20 (every 2 years)||$350 (every year)||$100 (every year)||$0 (no fee and no information report)||$89.34 (every year)|
|Corporate Tax Rate||8.84%||0%*||6.6-7.6%||4.90%||5.60%|
|Nominal GDP per capita||$85,546||$61,375||$62,867||$56,511||$64, 773.08|
|Overal Rating for Starting an LLC||4/5||4/5|
Before You Set Up An LLC In California
Starting a company from scratch can be hard. However, below are a few things you could do prior for a great start;
- Choose a business idea for your LLC- Work through a list of ideas and find the best-suited one.
- Reserve your business name-This is done by filling up a form to avoid the disappointment of missing out on a name.
- Create an online presence- start marketing your business through online platforms.
How Much To Start An LLC In California
The costs incurred mainly include filling costs and service fees. Here is a breakdown of how much it will cost to start an LLC in California.
Cost Of Filling LLC’s Articles Of Organization
This will vary depending on whether you’re forming a domestic LLC or a foreign LLC. It will cost you $70 to file your Articles of Organization with the California Secretary of State.
Statement Of Information
A $20 fee is incurred when you file the statement of information.
Annual Tax Fee
All LLCs doing business in California must pay a tax fee of $800.
Registered Agent Fee
This fee depends on the individual you choose. The fee ranges from $50 to $390 plus state fees in most cases.
An estimation of the costs involved in starting an LLC in California is $1110. This is inclusive of only filling and taxes. Depending on the business type, a few other costs may be incurred to acquire business permits.
Steps To Start An LLC In California
Starting an LLC requires you to follow the correct guideline.
Here is the step-by-step procedure for starting your LLC:
Pick A Name For Your LLC
This is one of the most important steps in forming your LLC company. The name must be unique and non-existent in the California Secretary of State records.
The chosen name for your California LLC must follow the following guidelines.
- The name must include Limited Liability Company or its abbreviation L.L.C, LLC or words such as Limited, Ltd.
- The name cannot be confused with a government agency such as the treasury or FBI.
- Words such as bank, insurance company, trustee, or corporation are restricted.
The form can be mailed or dropped off at the Secretary of State’s office in Sacramento. A fee of $10 is applicable.
Find A Registered Agent In California
All LLCs must have a registered agent, also known as an Agent of Service of Process. This is an individual who receives legal papers, tax notices, and business renewal notices on behalf of the company.
In short, this is the person (or company) who will serve as the company’s point of contact with the State. In California, you can be your business’s registered agent as long as you meet the requirements. Minimum requirements include being of legal age and having a registered physical address in California.
The cost of hiring a registered agent ranges from $50-$390. Nonetheless, the quality of service should be your guide when hiring a registered agent. Our best-reviewed agents include:
|ZenBusiness – $49 + state fees to register your LLC (read review)|
|Incfile – $0 + $50 state fees to register your LLC (read review)|
File Articles Of Organization
Articles of Organization are needed as a legal requirement to operate an LLC in California. You’ll need to file Form LLC 1-Articles of Organization. This can be done online, by mail, or in person. A $70 filling fee is applicable, and an additional handling fee of $15 for in-person submissions.
Articles of Organization is a simple yet essential document. Information you need to fill out include;
- LLC name and address
- Registered agent’s name and address
- LLC’s management. Member-managed vs manager-managed
- The company’s purpose
- Signature of the person forming the LLC.
Once filed, the Secretary of State will review the documents. If approved, the LLC is finally formed, and the applicant receives a certificate at a fee of $5 submitted during filing.
File Statement Of Information
Initial Statement of Information (Form LLC-12) is filed within 90days after the LLCs formation. This is done with the Secretary of State and is conducted online or in person.
Information required to file the Statement of Information includes
- LLC’s name
- Secretary of State file number
- Registered agent’s name and street address
- The mailing address of the LLC
- Name and business address of any elected manager or CEO of manager-managed LLC
- Name and business or residence address of all the members of member-managed LLC
- Principal business activity.
Create An Operating Agreement
This is an internal document that outlines how you will conduct business. Here you will outline:
- How many shares each of the co-owners are entitled to.
- Structure of your working relationship
- Percentage of profits
- Actions to be taken in case a co-owner leaves
The document is not a requirement by the Secretary of State. However, it comes in handy when settling disputes or in case of any legal intervention. For LLCs without an operating agreement, state law is applied in case of any litigation. Eforms is a great platform to help you draft an operating document.
Get An Employer Identification Number
Also known as the Federal Tax Identification Number, this is the number required to identify the LLC as a business entity by the Internal Revenue Service (IRS). Once you acquire the number, you can hire employees or open a business bank account.
Applicants can get their EIN by mail or online through the IRS website.
The Forms You Need To Register An LLC In California
The process of starting an LLC in California involves filling out several forms with the Secretary of State.
Form LLC-1 -Articles of Organization is a form that enables the official registration of your LLC
Form LLC-12 -The State of Information is a form filed within 90 days of the LLC’s formation.
Name Reservation Request Form– The form is filled to reserve a name for up to 60 days.
|Did you know?|
The enactment of the Beverly-Killea Limited Liability Company Act in 1996 allowed the formation of LLCs in California.
LLC Taxes In California
California requires you to pay state and federal taxes to operate. The Federal government directly levies federal taxes while the State levies State taxes.
How Much State Taxes Do LLCs In California Have To Pay?
LLCs have to pay annual franchise tax and sales taxes.
Annual Franchise Tax
The minimum tax imposed is $800 but increases for revenues exceeding $250,000. The tax is paid to the California Franchise Tax Board and ranges from a minimum of $900 to $11,790.
If your LLC specializes in selling products, you must pay your sales taxes. The rate is 7.25 %, but this could increase due to district taxes added by local jurisdictions. Payments are made periodically to the California State Board of Equalization.
How Much Federal Taxes Do LLCs In California Have To Pay?
For LLCs, federal taxes include income taxes, self-employment taxes, and employment taxes.
LLCs are subject to pass-through taxation. The company’s profits are taxed at the member’s tax rate.
These are taxes paid on behalf of members of the LLC to the IRS. They include social security and Medicare taxes. The current rate for social security tax is 12.4% on wages up to $132,000 and 2.9% for Medicare taxes.
Employers with employees must pay this tax to the federal government. The taxes include:
- Social security
- Medicare taxes
- Federal Income Tax Withholding
- Federal Unemployment Tax.
Is California A Good Place To Start An LLC?
California may have high taxes imposed on its business, but the thriving economy and booming population make it a great location for an LLC. The state is also a top tourist attraction that enjoys many networking opportunities. With the correct paperwork, setting up an LLC is not complex.
How Long To Form An LLC In California
The correct time frame will be determined by how you file your paperwork. At the Secretary of State, most LLC forms are processed within 3 to 4 working days except in peak months. Even so, mail applications have extra transit time to be accounted for.
How Much Does It Cost To Run An LLC In California?
Several fees are involved in ensuring you maintain an active and registered LLC. These include taxes, fees, and any filling expenses. Annually LLCs are expected to incur taxes amounting to a minimum of $800. However, this will be determined by their revenue. The companies are also expected to cater for a registered agent’s fee of between $50 and $300.
When it comes to filling fees, amendment fees will cost you $30. Filling the statement of information costs $20 and is done once every two years. Hence, the costs of running an LLC will depend on taxes and registered agent’s fees if you have no filling expenses with the Secretary of State.
What To Do After Formation?
Successfully forming an LLC in California is a huge step. However, there are several other things to take care of to position your company for financial success, stay compliant and safeguard personal assets.
- Create a logo
Logos create brand visibility, growth, and identity. There are several things to consider and research in finding your perfect logo. Explore different designs and test them across different platforms.
In addition, trademark your company logo as intellectual property and protect it from copyright infringement from other companies. Registration of trademarks is relatively cheap in California.
- Build a website
This will help you showcase what your brand represents. Websites also help businesses communicate with their consumers and help them understand what sets their business apart.
You can use a simple web builder to create your website. To get started, ensure that your website has the following features:
-Attractive imagery to remain visually engaging
-Your brand colors to personalize the website
-A home page.
-Contact information page.
In addition to building a website, you can also improve your web presence through social media channels.
- Bank account
To protect your personal assets, creating a business bank account is essential. A business bank account helps you separate your personal and business assets. In case of any debts and liabilities from the company, you will be safeguarded. At this point, you can also consider hiring a business accountant.
- Business insurance
Insurance is an important financial investment for any business.
Insurance types to explore include;
-Professional liability insurance
-Workers’ compensation insurance
-Product liability insurance.
There is a comprehensive guide on acquiring insurance and identifying the ideal insurance for your business on the California Department of Insurance website.
- Annual reports
Annual reports are on every business’s to-do list to remain in good standing with the Secretary of State. The Statement of Information is what keeps the state updated on your registered agents, current address, and members in case of any changes. Reports can be filed in person, by mail, or online.
Ensuring you have everything in place goes a long way in protecting your business from lawsuits, copyright infringement, and fines. This saves you money & time, and it protects the company’s reputation.
Resources To Start A Successful LLC In California
Business Name Database – This site is relevant when choosing a name for your LLC. Through this, you will be able to choose a unique name.
California Secretary of State – Find all the relevant forms needed for creating an LLC in California. Find forms such as Articles of Organization and Statement of Information.
Internal Revenue Service – Apply for your Employer Identification Number.
California State Board of Equalization – LLC businesses that have to pay sales tax need to register here.
State of California Franchise Tax Board – For payment of the franchise tax and filling of Limited Liability Company Return of Income.
Start Marketing Your LLC In California
Marketing your LLC helps grow your business by creating awareness of your products or services. It is also a way to grow brand awareness and visibility.
A good start for marketing is by creating a strong online presence. This could be through your website and social media platforms. Other ways to market your brand include;
- Create promotional videos – This goes a long way in convincing customers why they should do business with you. Videos also create an opportunity for company management to explain what sets your brand apart. The video can be posted on your company website or social media channels.
- Create and grow an email list – Create a list of contacts to that you can send out promotional emails regularly. You can expand the list by encouraging visitors to your website to sign up.
- Sponsor events – This is a great way to create brand visibility. Have your business tied to something fun or charitable to help position your brand.
- Create business cards – Have beautifully designed cards and brochures that help put the mission of your company in the public domain.
You can also opt for marketing ideas such as t-shirts, pens, and notepads that have a clever tagline associated with your brand.
How To Dissolve An LLC In California
Following the right paperwork is important in the dissolution of an LLC in California. This will save you time and legal battles. The dissolution process depends on when you filed your Articles of Organization and whether you have acquired a unanimous vote for the dissolution of the company.
Once you have filled out the correct paperwork and met all the requirements, you will need to attach your LLC’S filling number and the company’s name.
An LLC is a good business structure that separates the owners from the companies, making it great for start-ups. In this guide, a lot of details on forms, fees, taxes, and relevant authorities have been discussed.
In addition, we have ensured to have the right links to help you have smooth sailing as you start your LLC in California.