All there is to Know on How to Start an LLC in California

Photo by RODNAE Productions: https://www.pexels.com/photo/marketing-people-hand-banner-7563566/

There are six steps to starting an LLC in California. Once these six steps are complete an entrepreneur will have a brand new LLC that they can use to start making money. These steps must be completed in order so that the LLC can be formed properly. These steps are: name the LLC, decide on a registered agent, file the Articles of Organization, file the Initial Statement of Information, create an operating agreement and finally acquire an EIN. Each of these steps will be explained in detail below so that an individual can know all there is to know about starting a California LLC

For more information: 

Six Steps to Start a California LLC 

Step 1: Name the LLC 

Naming an LLC is the first and most important step in the process. This may appear straightforward but there are several things which entrepreneurs should be aware of before deciding on their business name. Firstly, there are several requirements which a business name must meet to be accepted. An LLCs name must include LLC or some derivative of LLC such as limited liability company. The name is not allowed to include wording which may confuse it with a government agency. Additionally, there are certain restricted words such as bank which may require additional paperwork and licensing. The next step is to ensure that the name is available in the State of California which can be checked online. After this an entrepreneur should check to ensure that the .com URL of their business name is available for purchase so that they may set up a business website. 

Step 2: Select a Registered Agent 

It is a legal requirement to appoint an Agent for Service of Process in California. The Agent for Service of Process is known as a registered agent in other states and their function is the same. This is the person or business who operates as the point of contact between the LLC and the state. They will receive important documents on behalf of the business such as tax forms. The Agent for Service of Process must be a full time resident of California if they are an individual and they must have an address which is not a PO Box in the state. This can be an individual in the LLC or the LLC owner but it cannot be the LLC itself as businesses are not allowed to serve as their own registered agent. 

Step 3: File the Articles of Organization

The third step in the process is to file the Articles of Organization with the state. This form is called Form LLC-1 Articles of Organization and it needs to be filed with the California Secretary of State. This submission can be made in-person, online or via mail. It is also important to note that California has waived the LLC formation fee from the 1st of July 2022 to the 30th of June 2023. This is also an optimal time to decide on whether the LLC will be member managed or manager managed. If a business is expanding to California it will need to file to form a foreign LLC. 

Step 4: File the Initial Statement of Information 

Every LLC that forms within California is required to file the Initial Statement of Information within 90 days of the business being formed. This process can be done in-person, via mail or online. This comes with a $20 fee irrespective of the method which an LLC owner chooses to submit their information. 

Step 5: Create an Operating Agreement

This is another legal requirement of forming an LLC in California. The operating agreement is a legal document which outlines the ownership of the LLC and its operating procedures. The operating agreement is important because it ensures that all the owners of an LLC are seeing eye-to-eye and it substantially reduces the risk of conflict down the line. This document does not need to be filed with the state but it must be kept on file within the LLC. These can be created online using free templates and tools. 

Step 6: Acquire an EIN 

An EIN is an Employer Identification Number and this is a nine digit number which the IRS assigns to a business for tax purposes. This is effectively a social security number for a business. The EIN is also sometimes referred to as a Federal Employer Identification Number (FEIN) or Federal Tax Identification Number (FTIN). An EIN is a legal requirement for a business if it has more than one member. Additionally an EIN is required for the following: opening a business bank account, filing and managing tax on a state and federal level and hiring employees. If a business was a sole proprietorship before becoming an LLC they will need to get a new EIN when converting to an LLC. An EIN can be acquired for free from the IRS online or by mail. An EIN can also be acquired if an individual does not have a social security number. 

Final Thoughts 

This article has outlined the six steps to form an LLC and provided entrepreneurs with all the information they need in order to form an LLC in California. After this process has been completed it is highly recommended that an LLC owner acquire a business bank account. This is vital for the process of separating personal and business finances. Additionally, a business bank account is essential for the process of acquiring a business credit score. Business credit is very necessary for a business owner who would like to acquire financing of some kind for their business.