Guide to California LLCs
“LLC” stands for Limited Liability Company. Each state has different rules for LLCs, and this guide will focus on how California LLCs work.
This guide is part of our more general Guide to the Law for Entrepreneurs and Business Owners in California.
1. What is a California LLC?
A California LLC is an LLC that is registered with the California Secretary of State. An LLC is a legally recognized business entity that is considered separate from its owner(s). There are many benefits to having a separate legal entity, which you can read about at our Guide to Business Structures in California.
2. Creating an LLC in California – “Formation”
Creating or registering an LLC is known as formation or forming the LLC. Sometimes it is referred to as incorporating, but this is not exactly accurate, as an LLC is not the same as a corporation.
Note that registering a business may also refer to a few different things. See our Guide to Registering a Business in California.
How do I create an LLC in California?
An LLC is created in California by filing Articles of Organization with the California Secretary of State. The Articles of Organization can be as simple as a one-page document that includes the following at a minimum:
- Name of the LLC
- Address of the LLC
- Agent for service of process
- Management of the LLC: whether member-managed or manager-managed
- Organizer name and signature
You can find the standard form for Articles of Organization, the LLC-1 form, at the Secretary of State’s website. You can file it by submitting it online, by mail, or in person.
Once the Secretary of State receives the Articles of Organization, along with the filing fee of $70, they will review it for completeness and compliance with the law. If it complies with the law, they will file it, and your LLC will be ready to go!
Although it really is that simple to legally create the LLC, there are further steps to take to ensure it is fully set up.
How do I set up an LLC in California?
After the Articles of Organization are filed with the Secretary of State, you will need to take the following steps:
1. Obtain an EIN from the IRS.
2. If applicable, file paperwork with IRS to select your tax treatment. For tax treatments of sole proprietorship and partnership, no filing is necessary. For S corporation tax treatment, file Form 2553. For C corporation tax treatment, file Form 8832.
3. Prepare and have owners sign operating document (called Operating Agreement).
4. Prepare other initial documents, including resolutions, member certificates, etc.
5. Properly file for any required licenses or permits.
6. Open a bank account in the full name of the LLC and keep the finances separate from your personal finances.
7. Make sure contracts are in the full name of the LLC.
8. Use the full LLC name on your website, business cards, etc.
9. Properly file and pay taxes and fees.
10. Properly file initial Statement of Information, and subsequent Statements of Information every 2 years.
How much does it cost to start an LLC in California?
$90. This includes just the initial filing fees of $70 (Articles of Organization), and $20 (initial Statement of Information).
This assumes the LLC is created after 2021. For LLCs created before 2021, you would also incur an $800 franchise tax within 2-3 months of formation (15th day of the 4th month). For those prior LLCs, I would then consider the startup costs to be $890. However, a recent law (Assembly Bill 85) removed the initial franchise tax payment. This is in effect for at least until the end of 2023, but lawmakers could extend this further or indefinitely.
Now, aside from government fees, you may also consider fees for an attorney, if you hire one to help set up the LLC, which can range from $500-2500+.
3. California LLC costs
What are all the costs associated with a California LLC?
Considering just the government fees, here are the costs of an LLC in California:
Initial filing fee: $70
Statement of information: $20 (every two years)
Annual franchise tax: $800 (every year – April 15)
Again, aside from government fees, you may also consider fees for an attorney, if you hire one to help set up the LLC, which can range from $500-2500+. And consider fees for a tax professional (such as a CPA), which may be $250-$1000+ per year.
4. LLC Taxation in California
How is an LLC taxed in California?
By default, an LLC is taxed the same as a partnership. However, an LLC can also choose to be taxed as an “S corp” or “C corp.” See more about Business Taxes.
If you have additional questions or need help with your California LLC, discuss with a lawyer and tax professional.