There are many reasons a person might want to form an LLC. Usually, it is to take advantage of limited liability. Regardless of your reasoning, below is a summary of the five basic steps you’ll need to take to form an LLC in California.
1. Pick a Name.
There are only three requirements for LLC names. First, it has to be unique. No other LLC or business can have the same name as you. To check whether your desired name is available, visit soc.ca.gov , find the “Name Availability Inquiry Letter,” complete it, and mail it to the California Secretary of State. If your name is available, Great! If you’re not quite ready to register your LLC with the Secretary of State, you can reserve your name for up to 60 days by submitting the Secretary of State’s “Name Reservation Request” form with a $10.00 check.
Second, your LLC’s name cannot be misleading. And third, you must have the words “limited liability company,” “ltd. liability co.,” “L.L.C.,” or “LLC” in or at the end of the name.
2. Submit the proper paperwork and payment to the Secretary of State of California.
You’ll need to file two separate forms with the Secretary of State: the Articles of Organization and the Statement of Information. Both forms simply ask questions about you and your LLC.
The Articles of Organization is a form called LLC-1, which can be found at the Secretary of State’s business forms portal. The fee at the time of this writing to file the Articles of Organization is $70.00.
The Statement of Information is also a fillable form, which can be found at the Secretary of State’s website. Include a $20.00 fee with this form for filing.
3. Write an Operating Agreement.
An operating agreement is the document that will lay out how your LLC is going to be run. This includes duties of officers, ownership interests among members, decision-making powers, procedures to terminate the LLC, and other rules for how your LLC will operate. An Operating Agreement can be anywhere from 10 to 50 pages, depending on how complex your LLC is going to be. Many attorneys use a standard template for Operating Agreements that can be tailored to your LLC’s particular needs.
A well crafted Operating Agreement can set your business up for success. Not only will it be a good tool for reference on how to run your LLC in compliance with the law, but it can also protect you from liability.
4. Pay your franchise tax.
All LLCs are subject to an annual tax, payable to the franchise tax board. The base amount as of this writing is $800, with the possibility of an additional “LLC fee” depending on your LLC’s profits.
Your first payment is due the 15th day of the 4th month after your Articles of Organization are filed with the Secretary of State. Four months can come and go in a flash, so I recommend paying this tax as soon as you get your paperwork back.
The tax can be paid by completing form 3522, which can be found at ftb.ca.gov.
5. Check to make sure you’re in compliance with your local laws.
Additional things you’ll need to consider are local county and city regulations. If your business is just starting out, you’ll likely need to obtain a business license for the city and/or county. If you’re working from home, a home occupation permit might be required.
Visit a local business attorney in your city to get up to date advice on any additional steps you’ll have to take to keep your business in compliance with all applicable laws and regulations.
Disclaimer: this article was written in October of 2019. Be cautious of changed laws since the date of this writing.
The information in this blog is intended only as general information, and under no circumstances constitutes legal advice, nor does it create an attorney-client relationship. The information should not be relied upon as a substitute for specific legal advice concerning your particular situation.
For advice specific to your situation, contact us to schedule an appointment.
About the Koons & Riswold Auburn Law Office
Koons & Riswold maintains its main office in Auburn, California to provide clients with legal services in Auburn, as well as the greater Placer County region. Our Auburn lawyers provide legal services well suited to the Auburn area, which include: Living Trust and Estate Planning services, Probate, Real Estate legal issues, and Business Law matters. All our lawyers have deep roots in the Auburn area, having strong familial, community, and professional ties to the region. Koons & Riswold has recently opened a satellite office in Rocklin, California for the purpose of providing Living Trust and Estate Planning services there.