How to Start an LLC in California
One of the biggest questions we get when starting a business is "How do I start an LLC?" Forming an LLC is fairly easy in California and can be done for less than $100 and in about 5 mins if you want to do it yourself. Now before we begin, a small disclaimer: I am not a lawyer and this is not legal advice. This is for educational purposes only.
Not every business can become an LLC. Professionals like doctors or professional services may need to be formed as professional corporations. If this sounds like you, you should consult with a licensed lawyer to get advice on how your business can be set up.
You can always sign up at lavernesbdc.org/newclient and click get started, to schedule an appointment with one of our business consultants and get help with filing your LLC. With that out of the way let's get into the guide.
Step #1 Forming the LLC
The first step we need to take care of is forming the LLC. So head to your browser and type in SOS.CA.GOV. This will take to the Secretary of State website where you will be filing your LLC. You can scroll to this biz file logo here or click businesses then scroll and click this biz file icon then click File Online. Under Limited Liability Company (LLC) you are going to click formation first.
The first screen is a notice of the price to file which at the time of this recording is $70. There is also a minimum $800 minimum tax due to the Franchise Tax Board when you renew on the anniversary of your filing and every year after. So you will click start to begin.
The next screen is a privacy warning screen. Basically, when you file as a legal entity this information is a public record and anything recorded on this website for your LLC can be made public when filing or updating any information for an LLC or corporation. Click “I Accept” and you can continue.
The first screen of the application is the name and purpose of the LLC. Here you will put in the name of the business you would like to form and the LLC identifier like LLC or Limited. If you already have a reserved name you can apply that to your filing by checking the box. Then click Next.
On this screen is where you put the business address. Section A must be the physical address of the business and not a PO box. We will put in our address here. Section B is our mailing address if it is different from the physical. Here we are allowed to put a PO Box. Our address is going to be the same so we can leave it Yes and click Next.
For page 3: Service of Process, here is where you name an individual to act as the Registered Agent and take care of the legal and official paperwork for the LLC. You can name a 3rd party like legal zoom or another service to do this for you. You will need to figure out who your registered agent is before you file the LLC. Since we are a single-member LLC, we will act as our own Registered agent. Fill in your name and address information and click next.
Our next section is the Management screen. Here you are going to name who is going to manage the LLC from a business standpoint. If you have more than one member or partner in an LLC, you will need to agree on who is going to make decisions on behalf of the business. Since most are going to be a single-member LLC, I'll choose that and click next.
On the organizer page, this is the name of the individual who is organizing the LLC. Basically the name of the individual filing the paperwork. It doesn't have to be an owner or member but can be. The second part is the filing date. Will the filing date be today or will it be some time in the future. You can choose the option for a specific filing date in the future when you plan to start. Then click next.
On this page, you can review all the information you have put up until this point and it is your last opportunity to correct any mistakes. Once everything looks good, click next to the payment page where you can enter in your payment information for the $70 filing fee and submit it. Your filing is now complete!
Step #2 Filing the Statement of Information
Now that you filed your Articles of Organization, you make think you're done. Not so fast there is one more step you need to complete. This next step is called the Statement of Information. Head to the main filing page and click on the statement of Information this time. The form is really easy and basically just verifying the information in the Articles of Organization as the LLC operates year after year. You will need to file this within 90 days and then every 2 years. The statement will cost $20 for the initial filing and the biennial filing.
If your LLC information changes, like address or the management you will need to update the statement of information when the change is made. You won’t incur any fee for updating this information between periods. I can’t show you how the statement of information is completed because we have filed an active LLC, but you can view this video here to file that statement and come back for the great tips coming up next.
Tips After you Start your LLC
Alright, if you made it this far congratulations! Here are the great tips I promised to get your LLC up and running smoothly once you file.
Tip 1: Pick the Right Time to File
As I mentioned before, the LLC has an $800 minimum tax. This tax is due on the 1st anniversary when you renew and every year after. You need to consider how much money your business makes so that $800 does not become a hindrance and you should not have to struggle to pay it to operate as an LLC. If you need to hold off and operate as a sole proprietor then that’s ok. Be sure to check with a lawyer to identify that it’s not an issue to operate as a Sole proprietor with your type of business.
Tip 2: Consider an operating agreement
An operating agreement lays out how the operations of the LLC works. This means what percentage of the business each member owns, who makes the decisions in the LLC, and even terms of how the LLC should operate if a member dies or is looking to leave the LLC. While the written operating agreement is not required to be submitted to the State, it is highly recommended you have one created for LLCs.
TIp 3: File an EIN
You need to file an EIN for an LLC because now it's a new legal entity and should have its own tax filing numbers and be separate from any personal assets. If you need to know how to file an EIN check out our video on how to do that. Make sure when you file your EIN, you will need to file it with the LLC information and not your own.
Tip 4: Licenses and Permit
Speaking of using the LLC information, when you begin filing for the other licenses for your business, you generally will be using the LLC name and information to do these filings. If you are converting from a DBA then you will need to update this information for the LLC once the formation is complete. Check with your local SBDC to help to file the required licenses and permits you need for your industry and type of business.
Tip 5: New bank account
Now that you have an LLC and EIN you will need to open a bank account for the LLC with that information. If you were DBA before it may be as easy as transferring those assets to a new account of the LLC, once that is set up. But you definitely want to make sure whatever personal money you have is not commingled with any assets of the LLC. Check out our video to start a business bank account if you need help with that.
Tip 6: Consider how you pay yourself
Whether you decide to form an S-corp or not, you should consider how you are going to pay yourself. You can set yourself up as an S-corp with 2553 and 8832 forms from the IRS to convert to an S-corp. This can save your business on taxes but you will need to set a payroll processor to make this work. If you need to set up the S-corp or payroll, you should consult with a licensed CPA to do those filings for your business.
Starting an LLC is a deceptively easy process to complete here in California. You have to remember that forming an LLC is more than just filling with the Secretary of State. Having an LLC is about keeping your finances in order, know your legal obligations, and how to interact and operate as an LLC. If you have any questions or need help starting your own LLC, reach out to us here at the University of La Verne SBDC with the information in the description below. But let me know what you think. Have you thought about starting an LLC? Or do you have any other questions of your own? Let us know in the comments below.
Funded in part through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.
by Joshua Botello
View the original post and video here.
La Verne Chamber of Commerce
2332 D Street, Unit E
La Verne, CA 91750