1. What Is a Limited Liability Company (LLC)?
2. How to Start an LLC in California?
3. Importance of Operating Agreement
4. Things to Remember While Forming an LLC in California

LLC California cost is affordable since you can form it with a single owner.

What Is a Limited Liability Company (LLC)?

  • An LLC or a limited liability company is a less formal business entity than a corporation. It protects its shareholders against personal liability for business debts.
  • LLC is more suitable for small businesses since it's simpler than other forms of incorporated businesses.
  • If you plan to have someone else to oversee the management of your LLC, you must comply with certain federal and state provisions for security.
  • However, if you are the only owner of your LLC and you do not intend to invite outside investments, the security provisions do not apply.
  • The liability of an LLC is limited to the assets of the business; creditors can't pursue personal assets of shareholders.
  • For the purpose of taxation, an LLC is treated as a pass-through entity just like a partnership and sole proprietorship business. It passes on the profits to shareholders, who then include their respective shares of profits in their individual taxable income. The LLC does not pay any corporate income tax separately.
  • Just like a corporation, an LLC too is a separate legal entity. Unless you legally dissolve it, it's liable to pay various fees and taxes irrespective of whether it's into business or not.
  • To dissolve an LLC, you must submit certificates of cancellation and dissolution with the California Secretary of State and comply with certain requirements of franchise taxation.

How to Start an LLC in California?

  • To form an LLC in California, you must file articles of organization with the state, along with stipulated filing fees. You must also prepare an LLC operating agreement to set out provisions for internal working of the company.
  • You must also file Form LLC-1, which contains details like name of the LLC, its principal place of business, and name of the registered agent whom legal notices can be served.
  • You must obtain all permits and licenses applicable to business startups in your industry. These could include a tax registration certificate or a business license, federal employer ID, and seller and zoning permits.
  • The name of your LLC must be different from other LLCs. You can have a name search done for availability and reserve the name before filing formation documents.
  • If your LLC has two or more members, you must have an LLC operating agreement between the members. This agreement defines roles and voting rights of members, terms and conditions for admission and removal of members, and contains provisions for management and dissolution of the company, among others.
  • Basic requirements for forming a California LLC include the following:
    • A unique business name ending with certain words like “Limited Liability Company” or its variation
    • Duration of the company
    • Purpose of the company
    • Name and address of California registered agent
    • Signature of the California organizer

Importance of Operating Agreement

An operating agreement:

  • Sets out rights and responsibilities of shareholders and directors
  • Describes the arrangement to run the business of the company
  • Supports the personal liability protection in courts since it shows that you have been organizing the affairs of your company with enough care and caution
  • Establishes rules for profit sharing, major decision making, and entry and exit of members
  • Minimizes the risk of misunderstanding among shareholders over financial and managerial issues
  • Allows you to have your own rules (in the absence of an operating agreement, state LLC laws apply)

Things to Remember While Forming an LLC in California

  • Choose a business name ending with “Limited Liability Company”, LLC, or any of its variations.
  • Assign a registered agent in California for receiving service of process on behalf of the company.
  • If your company offers professional services, ensure that it meets the legal requirements of California for service businesses.
  • Ensure that the LLC maintains proper accounts and records.
  • File a Statement of Information in Form LLC-12, first within 90 days of submitting Form LLC-1, and then annually or biennially.
  • Submit formation documents along with filing fees; these include
    • Articles of Organization
    • LLC Operating Agreement
    • Statement of Information
    • Initial informational report on your company
  • The corporate tax rate in California is 8.84 percent, and you can further reduce this rate through various deductions, exemptions, and strategies.

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