How to Start an LLC in California for a Small Business

California requires you to follow a set order when forming an LLC. If you skip a step, you might have to pay extra fees or deal with it. Many small business owners choose an LLC to protect their personal assets and to register their business with the Secretary of State.

If you want to start an LLC in California, this article explains each step. You’ll learn about filing Form LLC-1 Articles of Organization and Form LLC-12 Statement of Information with the Secretary of State, applying for an IRS EIN, and meeting California Franchise Tax Board requirements. It also covers basic research on city or county licenses.

If you need filing help, MyCorporation can guide you. These steps apply whether you file on your own or use a service. 

What is an LLC?

A limited liability company is a business entity under state law. It keeps business debts separate from your personal assets. Your LLC is official in California once you file the Articles of Organization Form LLC-1.

An LLC differs from other business types. In a sole proprietorship, the owner and the business share debts. General partnerships share liability but don’t protect personal assets. Corporations protect assets but require more paperwork. Limited liability partnerships are subject to different rules for licensed professionals.

LLCs offer flexible tax options. If you are the sole member, report business income on Schedule C of your personal IRS tax return. With multiple members, file Form 1065 as an IRS partnership. You may also elect S corporation status using Form 2553 on your advisor’s recommendation. The IRS, California Franchise Tax Board, and California EDD each have their own requirements by classification.

What an LLC Does for a Small Business in California

Imagine a catering business in Los Angeles or an online seller in San Diego. Both face customer claims, vendor disputes, and contract issues. An LLC creates a separate business entity that helps protect your personal assets from these risks.

Personal liability protection works best when you keep your business and personal finances separate. If a vendor sues you for unpaid invoices, the court will look at your LLC’s bank account, not your personal savings or home. Courts check if you mixed personal and business funds. If you have a separate business bank account and always use your LLC name on contracts, your protection should stay in place.

An LLC supports business branding. California business search lists your registered LLC name. You can open bank accounts, apply for merchant accounts, and seek credit lines. Banks require your EIN and entity number. Having an LLC shows your business’s legitimacy.

Each California city may have specific registration rules. Los Angeles requires a business tax registration certificate, San Francisco requires registration with the Office of the Treasurer and Tax Collector, and San Diego requires a business tax certificate. For the Bay Area or Central Valley, check local city or county requirements.

7 Steps to Start an LLC in California

Forming a California LLC takes seven steps. Choose a name and finish with your operating agreement. Each step builds on the last.

These steps match the order used by the California Secretary of State, IRS, and Franchise Tax Board. Filing in the right order keeps your paperwork organized and helps you avoid delays or rejections. Each section below explains the actions, form names, and where to file.

1. Name Your LLC

Your LLC name goes on Form LLC-1 and must follow the California Secretary of State’s rules. This name will appear on your legal documents, invoices, and contracts.

California requires your business name to end with “Limited Liability Company,” “LLC,” or “L.L.C.” You cannot use restricted words related to banks, trusts, or insurance unless you have the right licenses. Words like “Bank” or “Insurance” will need extra review and paperwork.

Use the Secretary of State Business Search tool to check if your proposed name is available. This tool compares your name to existing corporations, LLCs, and partnerships registered with the Secretary of State. Your name must be different from at least one word of the 1.2 million registered entities. You can reserve your name for 60 days by submitting a Name Reservation Request to the Secretary of State and paying a $10 fee online or at the Sacramento office.

Before you decide on a name, check the United States Patent and Trademark Office database for federal trademarks. Also, look up domain names and social media handles. If you want to use a different name than your registered LLC name, file a fictitious business name with your local county clerk, such as the Los Angeles County Clerk.

2. Choose a Registered Agent

A registered agent, or agent for service of process, receives lawsuits, subpoenas, and official mail for your LLC. This person or business must have a street address in California. A P.O. Box is not allowed.

Your registered agent must be available during normal business hours. The state sends legal documents to this address. If you miss a notice, your LLC could face a default judgment.

You can be your own agent with a California street address, use another responsible California resident with a written agreement, or hire a commercial registered agent service. Commercial services cost $100–$300 per year.

Your agent’s address is public on state forms. Using a commercial agent keeps your home address private. Accurate forms keep your LLC in good standing.

3. File Articles of Organization Form LLC-1

Form LLC-1, the Articles of Organization, creates your LLC record. Once approved, you will receive a 12-digit entity number to use for all future state filings.

You can file with the Secretary of State online through BizFile Online, in person at the Sacramento office, or by mail. The state filing fee is $70. Expedited processing costs extra, depending on the Secretary of State’s fee schedule. Most online filings are processed within 3 to 5 business days, while paper filings take longer.

The form asks for specific information. You need to list your LLC name, business address, and mailing address, if different. You also choose whether your LLC is member-managed or manager-managed. You must provide your agent’s name and street address. You can add a purpose statement to describe your business activities, but it is optional. As of 2024, many paper forms are now available online. Always check the latest Secretary of State instructions, as form names may change.

After the Secretary of State accepts your filing, your LLC becomes official on that date. You will get a filed copy or digital confirmation. Banks and landlords may ask for this document when you open an account or sign a lease. Keep the Articles of Organization in your permanent records.

4. File Your LLC Statement of Information

Form LLC-12, the Statement of Information, updates the state with your current addresses, managers or members, and agent details. It is connected to your 12-digit entity number from when you formed your LLC. California uses this filing to keep track of your business.

You must file your first Statement of Information within 90 days after your Articles of Organization are filed. After that, you file every two years during the same month as your original filing. The state fee is $20. You can file online through BizFile or by mail. Sign the form as an authorized person, such as a manager or member.

Missing your filing triggers $250 late fees and possible suspension. A suspended LLC can’t open bank accounts, sign contracts, or file lawsuits.

Set calendar reminders for your filing deadlines, or sign up for compliance tracking with a formation service to ensure your California LLC stays active. Take these steps now to keep your filings on schedule and your business in good standing.

5. Your LLC is Formed

Once the state accepts your Articles of Organization and your first Statement of Information, your California LLC is active. You can now sign contracts, open accounts, and do business under your LLC name.

Check your LLC’s status on the California Business Search page by entering your 12-digit ID to confirm it is active. If a bank or landlord needs more proof, order a certified copy. Keep your file-stamped Articles of Organization with your main LLC documents in a safe place.

Some California cities and counties require separate LLC registration. For example, Los Angeles, Orange, and Alameda Counties set their own license rules. Check local city or county websites for details. Use the same LLC name on all documents to build credibility.

6. Get an EIN from the IRS

An employer identification number (EIN) is a nine-digit number from the IRS. It acts like a Social Security Number for your LLC. Most California LLCs need an EIN to open a business bank account, hire employees, and file taxes.

You can apply for an EIN online at the IRS website during normal business hours. The application takes about ten minutes. You will enter information about the responsible party, select LLC as the entity type, state the number of members, and choose your federal tax classification. A tax professional can help you decide if you should stay a disregarded entity or choose a different tax status. Even single-member LLCs can get an EIN, even if they have no employees.

You can also apply for an EIN by mail or fax using Form SS-4. Mail applications take about four weeks. If you apply online, you get your EIN right away. Keep your confirmation letter, called CP 575, with your Articles of Organization and operating agreement.

The California Franchise Tax Board and Employment Development Department use your EIN on state filings. If you plan to hire employees, you must register with EDD for payroll taxes. Your EIN is listed on Form 568 for California taxes and on Form 1065 if you file as a partnership.

7. Create an Operating Agreement

California law requires every LLC to have an internal operating agreement. This document stays with your company and is not filed with the Secretary of State. Courts may consider it in disputes, so make sure to put it in writing.

Even if your LLC has only one member, it is still helpful to have a written operating agreement. It should describe ownership, management, banking authority, and how profits are shared. This helps show that your LLC is separate from you personally, which supports liability protection. Banks may also ask for a copy when you open a business bank account.

If your LLC has more than one member, your operating agreement should be detailed. Include each member’s capital contributions, voting rights, and decision-making authority. Specify manager roles if you have a manager-managed structure. Document how profits and losses are split, even if they do not match ownership percentages. Add rules for admitting new members, handling voluntary exits, and valuing buyouts.

Include references to the California Corporations Code sections that apply to LLCs in your agreement. Use clear language for daily rules. Review the document with a California business attorney or accountant before signing. Keep signed copies with your business records and store digital backups in a secure place.

Benefits of Forming an LLC in California

A California LLC offers small business owners legal protection, tax flexibility, and flexible management. This structure works for many types of businesses.

Each benefit below highlights a specific advantage. Personal liability protection protects your assets. Simplicity and flexibility make administration easier. Flexible ownership structures help your business grow. Credibility with banks and customers can help you get financing and contracts.

Personal Liability Protection

An LLC protects your personal assets from most business lawsuits and debts. Your home, car, and savings stay separate from business obligations if you keep good financial records. The LLC is a separate legal entity.

For example, if a customer slips in your Oakland store and sues, the lawsuit is filed against your LLC, not you personally. Courts will protect your personal assets unless there is fraud or you mix personal and business funds. To avoid problems, keep a separate LLC bank account and use the LLC name on all contracts and invoices. Talk to a California attorney for advice about your situation.

Simplicity and Flexibility

An LLC does not require many of the formalities that corporations do. You do not need annual shareholder meetings, detailed minutes for every decision, or complex share classes. The California Corporations Code gives you structure without a lot of extra paperwork.

You can choose between a member-managed or manager-managed LLC. Owners who want to run the business themselves often pick member-managed. Investors who hire a manager usually choose a manager-managed fund. Your operating agreement sets the voting rules and profit splits that fit your needs. California still requires a Statement of Information every two years, an annual franchise tax, and, sometimes, gross receipts taxes. However, daily record keeping is simpler than for a corporation.

Flexibility in Ownership

California LLCs can have one member or many members. Members can be individuals, other LLCs, corporations, or trusts. This flexibility allows for different ownership structures. Some licensed professions have special restrictions.

Ownership percentages do not have to match how much each member invests. Your operating agreement can set a different profit-sharing ratio if everyone agrees in writing. You can also set rules for transferring membership interests. This helps with succession planning and bringing in new investors without reorganizing the whole business.

Increase Your Credibility

Adding “LLC” to your business name on proposals, invoices, and websites shows that your business is organized. Vendors, clients, and lenders in places like Los Angeles, San Diego, and Silicon Valley notice this difference.

Banks such as Bank of America, Wells Fargo, and local credit unions will ask for your LLC formation documents and EIN before opening a business bank account. Corporate clients and government agencies prefer to work with registered businesses. Retail landlords check the Secretary of State database before approving leases. 

California LLC Taxes and Ongoing Filings

Forming your LLC is just the first step. To keep your LLC active and in good standing, you must follow California tax and filing rules. The Franchise Tax Board and the Secretary of State each have their own requirements.

Most California LLCs pay an $800 annual franchise tax to the Franchise Tax Board. Some new LLCs may qualify for a first-year exemption, depending on when they were formed. Check the FTB website for the latest rules. The annual tax applies every year your LLC exists, no matter how much income you make.

California also charges an additional LLC fee if your total California income exceeds certain thresholds. If your income is over $250,000, you pay the first level of fees. Higher income means higher fees. For example, a company with $500,000 in gross receipts pays about $6,000 in extra fees. This is separate from the $800 annual franchise tax.

Your federal tax filings depend on your LLC’s structure. Single-member LLCs taxed as disregarded entities use Schedule C. Multi-member LLCs file Form 1065 as partnerships. You can choose S corporation status with Form 2553 or C corporation status with Form 8832, but talk to a tax professional first. Always check with your accountant before filing your taxes to ensure you choose the right option.

You may need other California accounts for your business. If you sell retail goods, you need a seller’s permit from the Department of Tax and Fee Administration. If you hire employees, register with the Employment Development Department for payroll taxes. Many cities also require local business licenses. Keep filing your Statement of Information every two years. The Franchise Tax Board will suspend your LLC if you do not pay taxes or fees, and you cannot sign contracts or open bank accounts until you fix the problem.

What is the Cost of an LLC in California

California LLC costs fall into three categories: state filing fees, ongoing state taxes, and optional professional services. Make sure to budget for each part.

The initial state costs include a $70 fee for the Articles of Organization and a $20 fee for the Statement of Information. You can also reserve your name for $10. These filing fees add up to about $100 to start. The $800 annual franchise tax applies each year, but some new LLCs may qualify for a first-year exemption. If your business earns more than $250,000 in California, you will pay an extra income-based LLC fee.

For example, a solo graphic designer in San Jose might only pay the franchise tax and a small city license fee. A larger logistics company would pay the franchise tax, a higher LLC fee based on revenue, and register with the CDTFA for sales tax collection.

Optional fees include obtaining certified copies from the Secretary of State, hiring a registered agent, and hiring a lawyer or accountant. If you use a paid formation service, that adds to the cost. Most small LLCs spend between $900 and $1,500 in their first year, depending on income and service choices.

Conclusion

A California LLC gives you structure, asset protection, and a solid foundation for business growth. Make sure to follow the right filing order and keep up with taxes and reports. Your LLC will stay active if you meet each requirement on time.

The seven-step process includes filing Form LLC-1 Articles of Organization, the Statement of Information, applying for an EIN, creating an operating agreement, and registering for taxes. Each step helps build your foundation as a California business.

Always check official sources for the latest rules and fees. The California Secretary of State provides filing instructions. The IRS handles EIN applications. The Franchise Tax Board manages franchise tax and LLC fees. The Department of Tax and Fee Administration oversees seller permits. Your local city business office sets license requirements.

If you have a complex ownership structure, want to elect S corporation status, or need help with high-revenue LLC fees, consider getting professional help. A California business attorney or tax advisor can give you advice for your situation. Staying compliant helps your business look credible and grow. You can start an LLC in California with confidence by following each step in order.