Creating a California LLC: 7 Things You Must Know

With a boom in the technology sector, California is an excellent place for young, innovative entrepreneurs eager to see success. Many of these young entrepreneurs would like to go about creating an LLC, but few are familiar with how to do so. Too many entrepreneurs do not see their dreams come to fruition because they can never clear the hurdle of creating an LLC for their business operations. Below are seven things to know when creating a California LLC.

1) A Registered Agent Is Required

One of the requirements for creating a California LLC is that companies must declare a registered agent. A registered agent is someone who receives legal correspondence on behalf of the company. This not only includes government mailings, such as reminders about annual reports but notices of lawsuits as well.

When selecting a registered agent, it’s crucial to remember that the agent be at least 18 years of age and have a physical address in California out of which they can operate. The agent must be at the address during standard business hours in case anything significant were to be sent. It’s vital for new business owners to find a resident of the state who they can trust.

When selecting a registered agent, some entrepreneurs prefer to choose someone with who they are close, such as their spouse. While this may seem like a good idea, it could put the owner’s family at risk, since the owner’s home would likely be listed as the point of contact. This is a matter of public record, which means anyone could look up the business owner’s address. Owners would be wise to consider choosing a third-party resident agent company who knows about working in the state of California.

2) Selecting The Right Name For The Business

If an entrepreneur already has a name in mind for their company, it’s critical that they seek approval from the state of California before filing under this name. Entrepreneurs can search a database on the California Secretary of State’s website to see if their desired business name is already in use by another company. If entrepreneurs do not take this step, there’s a good chance that their LLC application is rejected, costing them valuable time and money. It’s also worth remembering that California LLCs are required to indicate this in their name by including either “LLC” or “limited liability company” with the business name.

3) Owners Must Submit Articles Of Organization

To register, new LLCs must submit Articles of Organization to the Secretary of State’s office. When filing in California for the first time, owners must provide a hard copy of this paperwork. They can do so by mail or by delivering the forms to the Secretary of State’s office directly. Once presented, the Secretary of State’s office takes a minimum of seven business days to process the paperwork.

Information that needs to be included when submitting the Articles of Organization to the Secretary of State’s office consists of the business name and address, its purpose of operation, contact information for the registered agent, and information about the company’s management structure.

4) File A Statement Of Information  

Within 90 days of submitting the Articles of Organization, a new California LLC should also provide a Statement of Information to the Secretary of State’s Office. Business owners can choose to mail the Statement of Information or file online. The state requires LLCs to submit a Statement of Information every two years.

This document allows businesses to keep their information up-to-date with the Secretary of State’s office. In California, the Statement of Information is the same as what other states commonly call the “Annual Report.” There is a $20 for LLCs to file the Statement of Information.

5) Look Into Tax Benefits

Many California LLC owners don’t realize that they could save themselves a significant amount of money by changing the way in which they file their taxes. For example, California LLCs have the option to declare to the IRS that they wish to be taxed as an S-corporation. This means that the owner is paid a salary and that the salary is deducted as a business expense. The owner pays the personal rate on the wage, while the company pays the corporate rate on all business income.

However, there are strict requirements about what types of companies can file as an S-corporation. New California LLC owners should look into all of their tax options to determine what would be the most beneficial for their company. California LLCs can elect to be taxed as sole proprietorship, C-corps, or partnerships, if there is more than one owner.

6) Draft An Operating Agreement

The state of California requires LLCs to have an operating agreement readily available. Although businesses do not need to submit this to the Secretary of State’s office, they should keep this information on hand at all times. The operating agreement defines the structure of the LLC. It includes information such as who the business’ corporate officers are and where they reside. It also includes information such as how the company will divide business profits among its members. Be sure to keep detailed records of all agreements and amendments associated with the operating agreement.

7) Check Business Licenses

Before an LLC begins conducting business in the state of California, it’s imperative that owners look into securing the proper business licenses for the company. Not only are there California state licensing requirements, but there are local licensing requirements as well. If a company were to begin conducting business without the proper licenses, there could be severe repercussions.

Specific industries may have stricter licensing requirements than others. But, as a rule of thumb, all companies must obtain a general business license before they begin any transactions. Other cities may refer to this license as a business tax certificate. Additionally, if a new LLC plans to conduct business in multiple locations, they are required to secure a permit for each area in which they will be doing business.

The payment structure will also vary for California business licenses. While some counties charge a flat rate, the cost for others will be a percentage of gross sales. Use the California government-provided resource GO-Biz for more information.

By following these seven tips and guidelines, entrepreneurs can create a California LLC with ease.