California LLC Rules: Everything You Need to Know
California LLC rules govern how this type of business can be created in the state, what taxes apply, and everything else that an entrepreneur must do to keep a California limited liability company (LLC) in good standing. 3 min read
California LLC rules govern how this type of business can be created in the state, what taxes apply, and everything else that an entrepreneur must do to keep a California limited liability company (LLC) in good standing. Learn more about what these businesses are and how to set one up successfully to determine whether an LLC is the right structure for your enterprise.
What Is a California LLC?
A California LLC, also known as a limited liability corporation, combines some benefits of a sole proprietorship with some perks of a corporation.
For example, members of California LLCs have personal limited liability protection, which members of a corporation enjoy. This ensures that the individual members' assets aren't liable for business issues such as bankruptcy in most situations. Unlike corporations, however, LLCs have a pass-through tax structure, like a partnership.
In California, you can form a:
- Single member LLC
- Multi-member member-managed LLC
- Multi-member manager-managed LLC
Other requirements in the state include:
- Drafting and filing an operating agreement
- Filing a statement of information for your LLC
- Paying the $800 franchise tax, which is due at the end of every calendar year or at the end of your company's fiscal year
Can Anyone Form a California LLC?
No. California LLC rules prohibit banking services, insurance services, and trust company businesses from forming this type of company.
Also, if a license is needed to provide professional services (such as physician or certified public accountant services), the business must be structured as a professional limited liability company instead of an LLC. You can read more about this regulation in the California Corporations Code Section 17375. If a licensed professional is providing services as a contractor, they may set up a business as an LLC. This is typically not recommended, however, because other business structures offer better tax benefits for licensed professionals who provide these services.
Rules for Naming Your California LLC
One of the first steps for creating a business in the state is picking a name for your LLC. In addition to not infringing on any companies that are already registered, you'll need to follow these rules in California:
- Your LLC name must end with “Limited Liability Company,” which you can abbreviate using “Ltd.” and “Co.” You may also use the abbreviations “LLC” or “L.L.C.”
- Words that suggest your business is in the insurance industry can't be used for your LLC. You also can't use words such as bank, trust, incorporated, and corporation as these words are reserved for specific business types.
- Your business name must be unique and distinguishable. This means that you can't use an LLC name if you find an exact match or a match that's too similar.
- The name must be unique enough to avoid any possible confusion about which products or services customers are purchasing.
How to Perform a Name Search for California LLCs
You can perform an LLC name search online through the California Secretary of State's website. It's free to search using this database. After typing the name that you want to search, the database will show you all exact and similar results for other LLCs registered in California.
Depending on your industry and the geographic area where your business will operate, you'll also need to check for LLCs registered at the national level. Your material may even infringe on international trademarks or service marks. For this reason, it's vital to perform a thorough search and to check whether your company may infringe on content protected at the national or global level.
After searching through the California Secretary of State, check the United States Patent and Trademark Office database for LLCs registered across the united states.
If you're not ready to register a name in California, you can reserve the LLC name for up to 60 days by filing a name reservation request form. No one else will be able to register that name during this period, which gives you enough time to create an online domain using the name, register a business email address using that name, and perform other important steps in creating a California LLC using your protected content.
The name reservation request form can be mailed or delivered in person. It only costs $10 to reserve an LLC name in California.
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