The decision to form an LLC in California is an exciting start to an industrious future. But how do you make it official and create a formal LLC? We will take you through the process step-by-step in a simple and approachable way.
The process of starting a Limited Liability Company (LLC) in California is a good one. The business structure is a solid one that is beneficial to the owners because their personal assets are protected against potential business losses or any legal disputes which may arise.
The following is a six step process which will result in the official formation of your new LLC:
Step 1: What is the name of your LLC?
This is an important part in establishing a unique business identity. Choose something that will stand out, but that also fills the California naming requirements. You want something that customers can easily identify and search for. In order to fulfil the naming guidelines for the state of California, the name has to incorporate the phrase “limited liability company,” or the abbreviations or words: “LLC, L.L.C., Limited, Ltd., Company or Co.” Secondly, it’s essential that your name cannot in any way be confused with words relating to a government agency, e.g. FBI, Treasury, State Department, etc. Should you choose to use restricted words such as Bank, Attorney, or University in the name of your LLC, then there is the possibility that you might require additional paperwork as well as having a licensed individual, such as a doctor or a lawyer, as a part of your LLC. There are other rules which you can investigate at California’s Code of Regulations.
Step 2: Decide on a Registered Agent.
You have to appoint a California Agent for Service of Process who is a person, or corporation, that has the legal authority to send and receive legal documents on your behalf. Should you choose an individual, s/he has to be a full-time resident of California or if you engage a corporation, the business must have the legal authority to operate in the state of California. You do have the option of nominating yourself or a member of the company should the state requirements be fulfilled.
Step 3: Legalize: File the California LLC Articles of Organization.
This document needs to be filed with the Secretary of State and can be done so online, by mail, or in-person. This is the legal document that formally forms your LLC. The document requires the name of the LLC, the name of the registered agent, a list of the services which the business will be providing, and you will have to pay a state filing fee of $70.
Step 4: Filed the Initial Statement of Information to the California Secretary of State.
After this document has been filed, you need to file another document named the Initial Statement of Information with the California Secretary of State. This needs to be done within 90 days of forming your LLC. This document requires that you state whether the business is member-managed or managed-managed. The difference between these two terms is that sif the business is member-managed then the members of the business run the business themselves. However, should the business appoint a manager, then the business is known as being manager-managed.
Step 5: Create a LLC Operating Agreement.
In California, an operating agreement is mandatory. This is a legal document which sketches how the ownership is shared and outlines the operating procedures of the business. This document is considered essential because it guarantees that all of the business owners have the same understanding of how the business will be managed and reduces the risk of disagreements in the future.
Step 6: Get an EIN.
The final step is to get an EIN (Employer Identification Number) from the IRS for free. This number is essential if you want to hire employees, open a business bank account, and for Federal and State tax reasons.
For more information on LLCs in California, TRUiC is a great help. They provide all of the information that you need and FAQs which are exceedingly useful.
George is the CEO of Expat Group Limited, based in Hong Kong.