So, you’ve started a business and want to form an LLC. You will need to know the California LLC requirements for forming this business entity. Before you begin, let’s define an LLC so you are clear on the definition.
LLC is short for limited liability company. Forming an LLC protects your business in case you are sued. An LLC can be owned by one or more people, each of whom is called an LLC member. An LLC with one LLC member is called a single-member LLC while an LLC with more than one owner is referred to as a multi-member LLC.
Email me at firstname.lastname@example.org to help you start your LLC registration today.
The main benefits associated with forming an LLC, including the following:
- Protects against lawsuits
- Cuts down on business documentation, when compared to incorporation
- Prevents double taxation
- Presents your company as being more credible
A large number of business owners like LLCs, which are created by filing through the Secretary of State’s office, because they are easy to manage. Because their set-up is more personalized than a corporation, LLC profits and losses are reported on the business owner’s personal tax return. The LLC itself is not responsible for paying federal or state taxes.
In comparison, a corporation is considered a separate tax entity from the business owner, and therefore pays taxes. Because an LLC’s revenue and losses are passed through to the business owners’ tax returns, LLCs are defined by the IRS as pass-through entities. This term also applies to sole proprietorships and partnerships.
As noted, LLC’s are particularly popular because they safeguard the business owner from being personally sued for his or her business debts. If the LLC incurs debts, only the assets of the company can be used for repaying them. This assumes that the owner has not made a personal guarantee for equipment purchase, for example, or a machinery lease.
Most LLC business owners are self-employed, so taxes are never withheld from their income. The tax law does require that an LLC owner make quarterly payments of taxes to the state and IRS. Also, owners of LLCs must remit quarterly self-employment taxes to cover Social Security and Medicare.
The only exception to the self-employment regulation involves multi-member LLCs where one member is only an investor. Therefore, he or she cannot make business decisions or provide company services.
If you establish a multi-member LLC for tax purposes, you may want to treat it as a C corporation. Doing so can save you quite a bit of money – money that can be used toward your company’s expansion and growth.
Unlike a regular LLC, a corporation, as indicated, is not considered as a separate tax entity from its owner. Therefore, a C corporation pays its state and federal taxes. The money does not pass through to the owner’s individual return. In this instance, the members in a multi-member LLC do not have to pay self-employment taxes, which can be a sizable saving.
I can show you how to set up your LLC to the best tax advantage. You only have to give me a call or contact me by email. Direct you email inquiries to email@example.com today. I can help you save on taxes and show you how to set up and file the paperwork needed to from a single-member or multi-member limited liability company (LLC).
What Specific Steps Do You Have to Take to Meet California LLC Requirements for Filing?
To meet California LLC requirements for filing, you will need to adhere the to the following process. Below are the steps you need to take in California to establish your business as an LLC.
#1 Select a Name for Your California LLC
You will need to choose a one-of-a-kind name for your LLC business. Make sure the name has not been taken and that it is unique. Don’t choose a name if one of the two following conditions exist:
- The name misleads the public
- The name is very similar or the same as a current name in the records of LLC names listed by the California Secretary of State.
To check the names listed by the California Secretary, review the office’s business name database. The database only checks LLC names that have been registered with the Secretary of State’s office. If a name is available for use, you can reserve it up to 60 days.
To reserve a name, you will need to fill out a name reservation request document. You will need to post mail the form or hand-deliver it to the Secretary of State’s office along with a $10 fee.
How You Can List Your LLC
Under California law, an LLC business name must show its LLC status in one of the following ways:
- LLC or L.L.C. may follow the company name
- Limited Liability Company may come after the business name
- The words, Company or Limited may be abbreviated to Co. or Ltd.
Note: The name of the LLC cannot contain words that suggest it is an insurance business or similar company. Therefore, the name cannot include words, such as trust, trustee, bank, inc., incorporated, corp., corporation, insurance company, or insurer.
#2 File the LLC’s Articles of Organization
You will need to file articles of organization with the Secretary of State. This is done by filling out Form LLC-1, which can be obtained from the Secretary of State (SOS) website and completed online.
What You Need to Include on the Form
You need to include the following details when filling out the LLC-1:
- The name of the LLC
- The purpose of the business
- How the LLC will be managed
- The address of the LLC
- The name and address of the registered agent, or the person handling the legal paperwork and other related documentation for the LLC.
After the form is completed, it should be hand-delivered or post mailed to the Secretary of State’s office. Include a filing fee of $70.00. Expedited filings can be arranged if the Articles of Organization are delivered to the office.
#3 Select a Registered Agent
Each California LLC must choose a registered agent or an agent for service of process, as he or she is called in California. This person or company agrees to accept legal documentation on behalf of the LLC in case the company is sued.
An LLC cannot serve as its agent for service of process. Also, only one agent may be named. The agent must agree to the assignment before being assigned to the role.
An individual agent must live in California and the agent’s street address must be included in the articles of organization. The address must be an actual street address, not a P.O. box. An agent may be a manager, officer, or member of an LLC, but does not have to be associated with the LLC business.
You can also obtain a listing of private service companies that can act in the capacity of an agent of process for a fee.
#4 Decide on Whether You Want Your LLC to be Member Managed or Overseen by An Appointed Manager
While most multi-member LLCs elect to be overseen by the membership, LLCs of this type may also designate a manager or managers to run the LLC. When managers are appointed, they can be compared to the directors of a corporation.
When more than one manager is appointed, they vote on specific business activities, such as redirecting a strategic plan, buying real estate, or applying for a loan.
#5 Draft and Prepare an Operating Agreement
While an operating agreement is not required by law or the Secretary of State’s office, you should create one anyway. I can help you draft the agreement so you can outline the duties and responsibilities of the members of your LLC. Email me at firstname.lastname@example.org today. An operating agreement should be written to prevent disputes over the operation of your company.
#6 File a Statement of Information and Submit it to the Secretary of State’s Office
Every LLC in California or foreign LLC that is registered in the state must fill out Form LLC-12, or Statement of Information. California LLC requirements mandate the form be filed every two years during the filing period.
The filing period represents the month when the articles of organization were filed and the previous five calendar months. For instance, if you file the articles of organization on August 15 of a year that is odd-numbered, you should file a statement of information every other between March 1 and August 31 of each following odd-numbered year.
What the Form Should Include
The filing fee for the Statement of Information is $20. The form should include the following details:
- The name of the LLC and the California SOS file number.
- The name and address of the agent for service of process for the LLC.
- The mailing address of the main executive office for the LLC.
- The mailing address for the LLC, if not the same as the address for the main executive office.
- Names and addresses (residence or business) of the manager(s) and chief executive officer, if applicable. If a manager has not been named, the name of each member and his or her residence or business address must be included.
- A business email address, if the LLC wishes to receive notifications and renewals from the SOS through electronic means versus postal mail.
- The LLC’s principal business activity. For example, this information may include a listing, such as a retail store, wholesale book distributor, or manufacturer of auto parts.
#7 Pay the Taxes that are Due to the State’s Franchise Tax Board
All LLCs in California must pay taxes to the Franchise Tax Board (FTB) in California if the following applies:
- The LLC is registered, organized, or performs business in the state of California.
- The LLC has not chosen to be taxed as a corporation but is taxed as a sole proprietorship or partnership, both of which are disregarded entities. If the LLC is taxed as a corporation, it abides by the corporate tax rules established by California law.
Any LLC that does business in California is subject to a franchise tax. The tax must be remitted to the FTB along with Form 35222, or the Limited Liability Tax Voucher.
If your LLC’s net worth is at least $250,000, you must pay an extra charge, based on your company’s total yearly income.
All LLCs in California must file state form 568 by the 15th of the month 4 after the close of the taxable year for LLCs. In most instances, the fourth month is April.
#8 Meet Other Regulatory or California LLC Requirements for Taxes
You need to comply with certain regulatory or state tax requirements when forming an LLC in California, including the following:
- An EIN – If your LLC is multi-membered, you will need to obtain an IRS employee identification number (EIN), even if the LLC does not have employees. If the LLC is a one-member entity, you must obtain your EIN, only if it has employees or you wish to tax it as a sole proprietorship (disregarded entity) or corporation. You can apply for an EIN with IRS form SS-4, which is featured on the IRS website. No filing fee is needed.
- Sales and Employer Taxes – If you will collect sales tax, you need to register with the state’s Board of Equalization (BOE), which can be done online or at a BOE office in person. To pay employer taxes, you need to register with the state’s Employment Development Department (EDD).
- Businesses Licenses. You may need to obtain a business license, depending on the type of business you manage. To find out further details along these lines, contact me by email. Send your inquiries to email@example.com.
You can see that the above filing requirements can consume some time. That is why it is important to form a relationship with a business organization attorney. Again, I can give you the leverage you need to establish your business successfully. Contact me at firstname.lastname@example.org to get started.
Are their Exceptions to California LLC Requirements for Filing with the SOS?
Under the law in California, California LLC requirements for filing do not extend to professional services. These services are defined as any service that is performed that requires state licensure. For example, if you work as a hairstylist, you cannot form an LLC. Instead, you can form a limited liability partnership or LLP.
What are the California LLC Requirements for Foreign LLCs?
Any LLC that is organized as a foreign LLC and located outside of California must register with the California SOS to do business in the state. To register, you must fill out Form LLC-5, or the document, Application to Register a Foreign Limited Liability Company. The filing fee for submitting the form is $70.
You can either send the form by postal mail or drop it at the SOS office for an extra fee. A foreign LLC must appoint an agent for service in California and present a certificate of good standing, provided by the agency where the company was established.
What To Do Next
Now that you know what is involved in establishing an LLC in California, you, no doubt, will need a legal advisor and mentor to direct you in the formation of your LLC. You can get the assistance you need by setting an appointment and talking with me. To begin the process, send me an email at email@example.com today. I can advise you on forming an LLC and guide you through each step of the formation process.
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