Many businesses decide to set themselves up as a limited liability company (LLC) so that they can get the advantages and protections that an LLC offers. With an LLC, the company has its own identity outside of the owner, its own tax ID number, and the ability to open a bank account under the LLC name. California has its own rules on how to create an LLC that business owners should know about.

What Are the Requirements for a LLC?

Companies wishing to register as an LLC in California should first check to see if the name they are using or want to use is available. If the name a company wants is available, they can reserve the name for up to 60 days until they finish filing the paperwork to become a LLC. Another thing that a company will need to do before they submit their paperwork to become an LLC is find an agent for service of process. This can be an individual or another business that resides in California, so long as it is not the company that is filing because an LLC cannot be its own agent for service of process. Additionally, after submitting your articles of organization or application to register, you have 90 days to send in a “Statement of Information,” which is the final requirement for becoming an LLC.

What Paperwork Do I Need to Form a LLC?

The Secretary of State of California has separate paperwork requirements for local companies and foreign companies, but all paperwork needs to either be mailed to pr dropped off in person at the Secretary of State’s office. If a company is based in California, it will have to submit Articles of Organization. To fill out this form, you need to include information about the name, the address, the agent who can be served, whether the company will be run by members or managers, how many people will be in charge of the company, and the purpose statement.

If a company is from outside of California, it will have to register as a foreign LLC. Foreign companies also need to include a Certificate of Good Standing from the state or country the company was formed in. When filling out the form for registration, the company will be required to provide:

  • The name of the company
  • Any other name the company intends to use as an LLC in California
  • When and where the company was formed
  • An authority statement about what business the company will be conducting
  • The address for the executive and principal offices
  • Information about the agent for service of process

What Benefits Does California Give to a LLC?

The benefit of creating a LLC is that it allows the owners, or “members”, of an LLC companies to avoid being taxed twice for the company’s profits. A corporation’s profits are taxed for both corporate and income tax purposes, whereas an LLC’s profits are only taxed once as part of a member’s income. LLCs also require less paperwork and recordkeeping than corporations. Another benefit is that, since California is a community property state, an LLC that is owned by a husband and wife can choose to file taxes as a disregarded entity, which is an option that is normally only available to single-member LLCs.

Although this is not truly a benefit in the traditional sense, you should file to become an LLC in California if you are planning to engage in business transactions in California, so that you can avoid paying another state’s franchise tax in addition to California’s franchise tax. Otherwise, you will be paying the franchise taxes of two states because all LLCs that transact business in California are required to pay the California franchise tax, even if the LLC is registered in another state.

What Disadvantages Does California Give to a LLC?

Certain types of organizations, especially professional organizations such as accounting and architectural firms, are not allowed to form a LLC in California. Additionally, any time an LLC’s information changes from what was listed on the Statement of Information, the LLC must file a new Statement of Information. The state also charges a $800 franchise tax for LLCs and requires companies that make $250,000 or more in a single year to pay an annual LLC fee based on their gross income level, although, as previously mentioned, these fees also apply to LLCs that were created elsewhere and simply do business in California.

Where Can I Find the Right Lawyer?

You may need legal assistance when filing to become an LLC because it is a complicated process. Thus, you should meet with a California business lawyer before creating an LLC.