A Limited Liability Company, or LLC, is a business structure that combines characteristics of a corporation and a partnership. For business owners in California, it offers personal liability protection, meaning the personal assets of the owners, such as homes and bank accounts, are shielded from business debts and lawsuits. An LLC also provides flexibility in how the business is taxed, allowing owners to choose a structure that fits their financial situation. This formation creates a distinct legal entity separate from its owners.
Initial Decisions and Information Gathering for Your California LLC
Before any official forms are filed, several decisions must be made. The first step is selecting a unique name for your LLC. According to California Corporations Code §17701, the name must include an identifier such as “Limited Liability Company,” “LLC,” or “L.L.C.” and be distinguishable from any other registered business name.1FindLaw. California Code, Corporations Code – CORP § 17701.08 You can verify a name’s availability using the online business search tool on the Secretary of State’s website. If you are not ready to file, you can reserve a name for 60 days by submitting a Name Reservation Request for a $10 fee by mail, or $20 in person.
Next, you must designate a registered agent, also known as an agent for service of process. This individual or corporation is responsible for receiving official legal and tax documents on behalf of your LLC. The agent must be an adult resident of California or a registered corporate agent service, have a physical street address in the state as P.O. boxes are not permissible for this purpose, and be available during normal business hours.
Finally, you will need to gather the full legal names and addresses of each of the LLC’s initial owners, called members, and any managers. Having this data compiled ahead of time will streamline completing the required state forms.
Completing the California Articles of Organization Form LLC-1
The official document that creates your business is the Articles of Organization, Form LLC-1. This form must be completed and filed with the California Secretary of State and can be downloaded from its website.
Filling out Form LLC-1 requires the information you gathered previously. You will enter the chosen LLC name and the LLC’s purpose; for most businesses, a general statement is sufficient, such as, “The purpose of the limited liability company is to engage in any lawful act or activity for which a limited liability company may be organized under the California Revised Uniform Limited Liability Company Act.”
You must also provide the LLC’s initial designated office street address in California, and the name and physical California street address of your registered agent. A section of the form requires you to declare the management structure by indicating whether the LLC is to be managed by one manager, multiple managers, or by all its members. The form must then be signed by the organizer.
Submitting Your Articles of Organization to the California Secretary of State
Once Form LLC-1 is complete, it must be submitted to the California Secretary of State. You can file online through the bizfileOnline portal, by mail, or in person at the Sacramento office. The online portal is often the most efficient method and is given priority processing.
A standard filing fee of $70 must be paid when you submit your Articles of Organization. If you file in person for expedited service, a separate $15 special handling fee is required. Acceptable payment methods include check or money order for mailed filings, and credit cards for online and in-person transactions.
After submission, processing times vary. Upon successful filing, the Secretary of State will return a file-stamped copy of your Articles of Organization. You can also request a certified copy for a $5 fee, which may be needed for opening a business bank account.
Developing Your California LLC Operating Agreement
After your LLC is formed, you must establish an Operating Agreement. This is an internal document that outlines the rules for how your LLC will be run. While California law allows for an oral agreement, a comprehensive written agreement is recommended for all LLCs, including those with only a single member, to provide clarity and prevent future disputes.2Justia. California Corporations Code § 17701.10 (2024)
The Operating Agreement should detail the internal governance of the company. Key provisions include:
- The financial contributions each member is making in cash, property, or services.
- How profits and losses will be allocated among the members.
- Procedures for making distributions of company assets.
- The management structure and the voting rights of each member.
- Procedures for admitting new members and the terms for a member’s departure, including buyout provisions.
- The steps for dissolving the LLC if the members decide to end the business.
The Operating Agreement is a private document. It is not filed with the Secretary of State but must be kept with the LLC’s official records.
Mandatory Next Steps After Forming Your California LLC
Once your LLC is registered, several mandatory tasks must be completed. The first is obtaining an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). An EIN is required if your LLC will hire employees, be taxed as a corporation, or open a business bank account. You can apply for an EIN for free on the IRS website.
Within 90 days of your LLC’s formation, you must file an initial Statement of Information (Form LLC-12) with the California Secretary of State. As outlined in California Corporations Code §17702, this form requires you to confirm details like the LLC’s principal office address, the registered agent’s name and address, and the names and addresses of all managers or members.3FindLaw. California Code, Corporations Code – CORP § 17702.09 There is a $20 filing fee for Form LLC-12, and failure to file within the 90-day deadline results in a $250 penalty. This statement must then be filed every two years.
All LLCs in California are subject to an $800 minimum annual franchise tax, payable to the Franchise Tax Board (FTB), regardless of whether the LLC generates income. The first payment is due by the 15th day of the fourth month after your LLC was formed and is submitted with FTB Form 3522. You may also need to obtain local business licenses or permits from your city or county.