What Is a Limited Liability Company?

The California LLC cost depends on several factors. An LLC, or limited liability company, is a way to structure a business that is less formal than a corporation but has some similarities. An owner of a business can be protected from personal liability for business debts under an LLC. An LLC combines the limited liability aspect of a corporation with pass-through taxation that is found in a sole proprietorship or partnership. Pass-through taxation means the business income passes through the business to the owners of the LLC, who will then report business income on personal tax forms and returns. 

The LLC isn't an entity that can be taxed separately, which is what differentiates this business formation from a corporation. The owners of the LLC do have protection from being personally liable for business claims and debts, which is similar to the owners of a corporation. This aspect of business setup is called limited liability. Limited liability means if the business faces a lawsuit or has debts, only the actual business assets are at risk.

A creditor doesn't have access to any personal assets held by the owners of the LLC, such as their cars of homes. The only exception to this is if corporate shareholders or LLC owners act irresponsibly, unethically, or illegally, in which case they would lose the protection.

Deciding to form an LLC is not something to be taken lightly. When you form any type of business, including a corporation or an LLC, it is designed to become a legal entity on a permanent basis. The LLC will continue to exist and incur any required fees and taxes. Even if you aren't actively operating the business, it will exist until you take the required legal steps for dissolution.

How Do I Form an LLC in California?

The first step to form an LLC in California is to file the articles of organization and pay the required filing fee to the secretary of state's office. Along with the articles of organization, your LLC will need an operating agreement. This document doesn't have to be filed, but creating it is an important part of forming an LLC. In the operating agreement, you will need to clearly spell out all responsibilities and rights of the owners of the LLC. Additionally, if your LLC has managers, their responsibilities and rights should be explicitly stated. 

The operating agreement should also clarify how the LLC will be operated and managed, as well as what type of business arrangement exists between the company owners. Should you choose not to produce an operating agreement for your LLC, the state laws in California will govern and determine how you can run your business.

Upon filing the articles of organization with the secretary of state and completing the operating agreement, you now have an official LLC recognized by the state of California. However, you still have some steps you must take, such as obtaining any necessary permits and licenses to operate.

Some of these steps include:

  • Zoning permits
  • Business license or tax registration certificate
  • Seller's permit
  • Federal EIN or tax ID number

You are not exempt from these regulations, even if you form an LLC, as they apply to every business.

Some of the basic requirements to register an LLC in California include:

  • The words limited liability company or an accepted abbreviation within the business name
  • Distinguishability, or a name that is different from any other company registered in the state
  • Duration over a period of time
  • An established purpose
  • An assigned registered agent with a physical address in California (cannot be a P.O. Box)
  • The name(s) of any manager(s) or member(s) of the LLC
  • Signature of the LLC organizer residing in California
    • Note: The secretary of state doesn't require submission of original signatures on forms. All paperwork will be sent in the mail to the LLC organizer who filed the documents. 

How Much Will It Cost to Form My California LLC?

Forming an LLC can vary in cost, although the total is dependent on several main factors:

  • The required filing fee for the articles of organization
  • The cost of the annual franchise tax
  • Any required service fee to form the LLC, such as if you had a lawyer assist with the process
  • Any ongoing costs
  • Fees for publication (although this is not a requirement in California)
  • Fees required to draft your LLC operating agreement
  • Fee to obtain an employer identification number (EIN), although if you have a Social Security number, this is generally free

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