Starting an LLC in California: A Legal Overview

Starting a limited liability company (LLC) in California is an attractive option for entrepreneurs looking to combine the liability protection of a corporation with the flexibility of a partnership. 

Forming an LLC can provide personal liability protection for its owners (known as members) and offer tax advantages. This blog post provides a legal overview of the process for setting up an LLC in California.

Step 1: Choose a Name for Your LLC

Your LLC’s name must be distinguishable from other business entities already registered with the California Secretary of State. It must include the phrase “limited liability company” or one of its abbreviations (LLC or L.L.C.). 

Step 2: Designate an Agent for Service of Process

An agent for service of process (also known as a registered agent) is an individual or corporation authorized to accept legal papers on the LLC’s behalf. The agent must have a physical street address in California.

Step 3: File Articles of Organization

To officially form your LLC, you must file Articles of Organization (Form LLC-1) with the California Secretary of State. The Articles must include the LLC’s name, the agent for service of process, and a statement of purpose.

Step 4: Create an Operating Agreement

While not required to be filed with the state, an operating agreement is crucial for outlining the LLC’s ownership and operating procedures. Although this is an internal document, it is legally binding for the members of the LLC.

Step 5: File a Statement of Information

Within 90 days of filing the Articles of Organization, and every two years thereafter, an LLC must file a Statement of Information (Form LLC-12) with the Secretary of State, providing current information about the LLC.

Step 6: Pay the Required Fees

There is an initial filing fee for the Articles of Organization and a biennial fee for the Statement of Information. Additionally, LLCs in California are subject to an annual minimum franchise tax.

Step 7: Obtain Any Necessary Business Licenses and Permits

Depending on the type of business and where it’s located, your LLC may need to obtain local, state, or federal licenses and permits to legally operate.

Step 8: Register for State Taxes

If your LLC will sell goods and collect sales tax, has employees, or will elect to be taxed as a corporation instead of a pass-through entity, you must register with the California Department of Tax and Fee Administration (CDTFA) or the Employment Development Department (EDD).

Step 9: Comply with Employer Obligations

If your LLC has employees, you must comply with California’s employer obligations — including unemployment insurance, workers’ compensation, and payroll tax withholding.

Step 10: File Biennial Reports

Every two years, LLCs must file a Statement of Information to keep the state updated on the company’s current contact and management information.

Starting an LLC in California involves a combination of state requirements and strategic business decisions. By following the legal steps outlined above, entrepreneurs can ensure that their new business venture is set up correctly and compliant with California law. Always keep abreast of the latest legal requirements and consider consulting with the lawyers at Gallagher Krich, APC — our experienced California business lawyers can address any company-specific concerns.

For more information, contact Gallagher Krich, APC at (858) 926-5797 or info [at] tomgallagherlaw.com

Attorney-Advertising: Tom Gallagher, Esq. is the attorney responsible for this advertising.

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