How to Start an LLC in California

The first step will be to decide on a name for your business. Choose a name that is memorable and unique, easy to understand and pronounce, and accurately represents your business. You'll want to search your name choices on the web to quickly find out if they are already taken. It's also best to jot down one or two alternatives, in case the name you settle on is not available for registration in California.

There are a few rules that California Limited Liability Companies must follow in order to register a name.

1. First and foremost, the name you choose must be unique and not "confusingly similar" to the name of any other California business. This is to prevent fraud or misrepresentation and is a common rule in all 50 states.

   You can find out whether a name is available in California by searching the California Secretary of State business entity database for possible conflicts, but be sure to check variations or alternate spellings as well, otherwise your filing may be rejected.

   You can also use our business name search service, and we will do a more thorough search on your behalf and report back our findings. MyCorporation also include a business search for free when we complete your LLC filings for you.

2. Secondly, consider including a corporate indicator along with the name of your business. A corporate indicator a representation of the type of business entity you have filed, tacked on to the end of your business name. Example indicators that you can use include LLC, L.L.C. and Limited Liability Company. You cannot misrepresent your entity, for example an LLC cannot have Inc. included in the business name.
3. Your name can also not contain restricted words such as "bank", "trust", "trustee", "incorporated", "inc", "corporation", "corp", "insurer" or "insurance company".

You can learn more about business name entity rules and regulations in the business name guidelines and restrictions (PDF)(126 KB) provided by the California secretary of state.

There are two options to choose from when it comes to setting up an LLC in California. "Member managed" or "manager managed". The first thing you need to know is that owners of any LLC are referred to as "members". A single member LLC has just one owner, while a multi-member LLC is an LLC owned by 2 or more members. Pretty simple, right?

Secondly, LLCs also must also designate one or more individuals to manage the day to day operations of the business. This can be handled by one of the members of the business (member managed, the most popular choice and the default in most states), or a professional manager appointed by the members to act on their behalf (manager managed).

While the differences are subtle, what you really need to know is that each member in a member managed LLC has the power to make decisions for the business. However, in a manager managed LLC, the members choose who will manage the business and relinquish all of the decision making to the manager chosen. The person chosen can be one of the members of the business as well, or it can be someone else entirely.

Most states require that you designate a registered agent for your business, and California is no exception. A registered agent acts as the state's means to communicate with a business and is responsible for receiving legal and official documents related to the business.

A registered agent can be anyone you wish, with one small caveat. The registered agent must have a physical address in California. In other words, a P.O. Box is not allowed as a registered agent address. This means a member of the Limited Liability Company can act as the registered agent if desired, or a third-party registered agent service like MyCorporation can be used.

Why designate a third party to act as my registered agent?

One thing to note about the registered agent information is that it is publicly available. This can cause privacy concerns for business owners who do not wish to list their personal contact information on the internet for everyone to see. It is also common for the registered agent to become a target of spam or robocalls since this private information is relatively easy to obtain.

Another issue that may arise is that in the case of a lawsuit, these documents would be hand delivered directly to the registered agent, and in the case that you used your business location for this purpose, this could occur in front of your customers. This is why many business owners opt for a third-party registered agent service such as MyCorporation to act as a registered agent on behalf of their business.

The state of California requires you to file Articles of Organization to order to form an LLC. The Articles of Organization is a simple one page form (Form LLC-1 (PDF) (708 KB)) that contains all of the basic information required to register your business. Once your Articles of Organization have been accepted by the California Secretary of State's office, your business is officially formed. A standard filing fee of $70 must be included along with your application.

What information should be included in the Articles of Organization?

The information required in the Articles of Organization is only the most basic details of the business, including the LLC's name, the principal business address, registered agent details, business purpose, and management type (Step 3).

Within 90 days of filing the Articles of Organization with the California Secretary of State, an LLC must also file an initial Statement of Information ( also referred to as an annual report ) using Form LLC-12 Opens in a new window.

The statement must include:

• The name of the LLC and the California Secretary of State file number
• The registered agents name and address
• The address of the principal office of the business
• The mailing address of the business ( if different from the principal office )
• The names and addresses of the managers or members and the CEO of the business
• The principal business activity ( such as retail store, advertiser, etc. )

Basically, only the contact details and the most general information about the business is required.

The Statement of Information is filed every two years after that, calculated from your incorporation date, with the same information. The purpose is simply to keep the business details up to date In the California Secretary of State's records. You will file with the same form when there are changes to your business LLC-12 (PDF)(864 KB) or, if the details remain unchanged, you can fill out a simpler version of the form. (Form LLC-12NC (PDF) (1.1 MB)Opens in a new window)

The state of California requires an LLC to create an operating agreement at the time of formation. The agreement can be oral or written, and should be kept with the company's records. In order to open a bank account for your business, you will often be required to submit both your operating agreement, as well as your EIN number.

What kind of information needs to be included in a California operating agreement?

Operating agreements while not required, are an import part to laying the foundations of a properly run business. An operating agreement sets guidelines for the way your business operates now and into the future. The most common details included with an operating agreement are:

• Basic contact details: The name of the LLC, the address of the principal business location and often, the registered agent address.
• The business purpose: This is a basic one sentence description of what kind of business your LLC will do, and is often a very general description, which creates a bit more flexibility as the business matures.
• Tax structure: Often this indicates the way the LLC will choose to be taxed. The main options are to be taxed as a sole proprietor or a partnership ( both pass through options ) or to be taxed as a corporation ( requires an S Corp Election to be filed )
• Ownership and management: This section lays out the general rules about how the business will operate day to day. This refers to step 3, where you determined whether your business would be "manager managed" or "member managed". As mentioned before, member managed is the default and the most common choice. If you are unsure, member managed is a pretty safe bet.

In California, all businesses are required to file for a general business license (sometimes referred to as a business tax certificate). If you plan on operating your business in multiple cities, you will need to apply for a business license in each location. In addition to the general business license, some additional permits may be required, which may need to be filed with the county or the state. For example, you may be required get a seller's permit or a liquor license, depending on the service your business provides.

You can find out about the specific licenses applicable to your business by checking with the city offices where you will be conduction business, or by using our business license compliance package, which will identify all of the licenses required by your business and provide you with all the information you need in order to file.

In a pinch, you can also check out CalGold Opens in a new window. CalGold helps businesses find appropriate permit information. Keep in mind that they do not issue permits or licenses directly, but they do provide contact information that allows entrepreneurs to reach out to the appropriate agency contact for administering and issuing out permits. The tool can be difficult to get a firm answer in some cases but is often a good gauge of what will be required of your business.

An EIN (also called a Federal Tax Id) is a nine-digit number that is issued by the IRS and used to uniquely identify your business for tax purposes. Think of it as a Social Security Number (SSN) for your business, except an EIN is far less sensitive. It is important to wait until the LLC has been approved by the state before applying, and for that reason, filing for an EIN is one of the last things to do when you are setting up an LLC in California

Like a social security number, the EIN allows you to:

• Open business checking, savings, or investment accounts
• File taxes for the business
• Complete payroll for employees if applicable
• Obtain lines of credit and credit cards, as well as "build credit" for your business
• Apply for applicable business licenses when required.

You only need a few pieces of information to file including your mailing address and legal business name. You can apply online with the IRS by downloading IRS Form SS-4 (PDF)(116 KB), or work alongside a third party organization like MyCorporation to complete an EIN application.

If a California LLC pays more than $100 in wages to employees each calendar quarter, you'll need to obtain a State Employer Identification Number, or SEIN. In order to do this, you will need to register with the California Employment Development Department (EDD).