California LLCs: Everything You Need to Know
California LLCs are formed when the Articles of Organization document is filed with the California secretary of state. 3 min read
California LLCs are formed when the Articles of Organization document is filed with the California secretary of state. They file biennial Statements of Information and pay an annual franchise tax which varies from $800 to $12,590. LLCs in California cannot provide professional services.
California LLC: Formation
The process of LLC formation in California is similar to the processes in other states.
- The process starts by choosing a name for the LLC. The name must meet all the requirements of the secretary of state and should be available. You can check your name for availability online on the business database of the California secretary of state and then reserve the name for 60 days at a fee of $10.
- The LLC then needs to appoint a person or entity as a registered agent for service process. The agent is responsible for receiving and forwarding legal papers for the LLC.
- To officially create the LLC, file the Articles of Organization with the secretary of state. Filing costs $70. Foreign LLCs register in California by filing the LLC-5 form.
- It is a good practice to have an LLC operating agreement. This document, although not submitted to the state will help guide the affairs of the LLC.
- Multi-member LLCs are required to get an EIN for the LLC. Even Single-member LLCs that have employees must get an EIN.
- You might also be required to get federal, state, and local government licenses and permits.
Maintenance of a California LLC
- File a Statement of Information form within 90 days of the company's formation. After that, the same document should be filed every two years. The filing fee for this form is $20. The Statement of Information lists current details about the LLC.
- All registered California LLCs that conduct business are required to pay the California franchise tax. This tax is paid to the California Franchise Tax Board. The least possible rate for this tax is $800 per year.
- You can have your LLC treated as a corporation for tax purposes by filing IRS Form 2553. For such companies, the franchise tax is charged at a rate of 8.84% of the LLC's net income for that year.
- If the LLC will be involved in selling goods, you will need to register with the California State Board of Equalization (BOE). You can then collect and forward sales tax to the board.
How California LLCs Are Different from Other LLCs
The process of formation of an LLC in California mirrors the process in many other states. Nevertheless, in some ways, forming and maintaining an LLC in California is unique. Here are some things which are peculiar to California LLCs:
- A California LLC cannot serve as its own service agent. It needs to appoint another person or corporation for this purpose.
- Unlike some states, California does not require newly formed LLCs to publish their Articles of Organization.
- LLC Reports to the secretary of state are not filed annually in California. California's equivalent of the annual report–the Statement of Information–is filed every two years.
- The California franchise tax that is slapped on almost all LLCs for "the privilege of doing business in California" is high compared to most other states. The FTB charges the minimum tax of $800 even if an LLC is not involved in business or inactive in a particular year. The franchise tax, which can be as high as $12,590 per year is one of the reasons why some prospective small business owners do not register in California.
- California may levy self-employment taxes on profits from a company even if such profits are actually are re-invested in the business.
- California LLCs cannot provide professional services, including all services that require a professional license from the state. If you want to start a business offering professional services, you have to register as a professional corporation.
How to Look Up an LLC in California
You may occasionally want to look up a business in California. The California secretary of state's website has a section for such searches. It can be used to look up LLCs. To do a search, open the business search page and enter the name or the 12-digit entity number of the LLC, and click on the search button.
To get certified copies of documents for LLCs, including status reports, formation and dissolution documents; file the Business Entities Records—Order Form to the California secretary of state's office.
If you need help with California LLCs, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.