Businesses having limited Liability Companies or LLCs have been gaining popularity among owners of startup companies. This does not come much of a surprise since having an LLC setup does bring several significant bonuses and advantages for its owners and for the company.
The said perks are even more apparent should businesses decide to start their company in the state of California.
Due to state regulations, more benefits await the owners who choose California as the state to register in.
In this guide, we will go through why you should consider setting up your business entity in California and some of the steps required to make it happen.
Why should you set up your business in California?
Reduced owner liability
LLCs work by limiting any liabilities sustained by the company within its organization. This means that any liabilities incurred by the business can only be charged against the resources of the business itself. In the state of California, the owner(s) or any member of the LLC cannot be hounded by the claimants of the LLC’s liabilities.
However, this does not encompass all circumstances. The same immunity or treatment as a separate entity also has its limits if the owner commits certain illegal acts or acts of negligence.
Flexibility of membership
The members of an LLC can range from individuals, trusts, business groups, partnerships, or even corporations. They are all called members regardless of their stake in the company.
The case is different in corporations where numbers of owners are regulated and shareholders are limited by restrictions.
Unique business branding
In California, you will be asked to select a unique name upon the registration of your LLC. Using your name means that no other business entity in California can use it while your business remains operational.
In contrast, a sole proprietor or partnership business set-up requires its owners to use their names as the business name. For these types of businesses to use something besides their name would entail more requirements.
Customized management arrangement
LLC’s can be directly handled by the members. This is in contrast with corporations that are fixed to a board of directors that act as the policy-making entity, and supervisors that manage the intricate details of everyday operations.
However, LLC members may also choose to employ a management group if necessary. The system of management may vary and conform to the wishes of the LLC members. So, let us explore what are some of the
Steps in setting up your California LLC
Step 1: Choosing a name for your California LLC
To start your LLC, you have to give it a name that conforms to state regulations. It must include the words Limited Liability Company, L.L.C., or LLC. The use of abbreviations for “Limited” (Ltd.), and “Company” (Co.) are authorized. To narrow down your search, look up California LLC name availability online or try the LLC lookup services online to check if the name you have in mind has been taken by an entity.
Meanwhile, regulations restrict the use of words such as Bank, Trust, Trustee, Incorporated, Inc., Corporation, Corp., Insurer, and Insurance Company for your business name.
Step 2: Selecting a registered agent
You must also choose a California-registered agent. This individual or company will be responsible for receiving legal documents, service of process, and official notes on behalf of your business.
Step 3: Filing of Articles of Organization
As an overview, the Articles of Organization document provides basic information about your company. This establishes your company as an entity with the Office of the California Secretary of State. It may sound like a tedious process but in reality, you will be submitting an online form that contains the following:
- LLC Name and Address
- LLC purpose
- Registered Agent Name and Address
- Management Structure (indicate whether the LLC members will be managing the company)
- Signature of the person forming the LLC
- Upon submission of your Articles of Organization, it will be subject to the review and approval of the California Secretary of State. Once approved, your LLC will become a legal business entity. This step may be done through email or in-person in California.
Step 4: Creation of an Operating Agreement
LLCs in California are required to have an Operating Agreement. It does not need to be filed but should be immediately accessible. This legal document which contains the ownership and member duties of the LLC comes in handy during financial agreements, disputes, and potential litigation.
Step 5: Securing an EIN
An Employer Identification Number (EIN) is the main reference used by the US IRS for identification and taxation purposes. This is very similar to a Social Security number for business entities.
Usual registration cost of LLCs in California
Here are some of the normal fees you may incur when filing your LLC in California, although these may vary depending in your registered agents:
- Name reservation: $10
- Statement of information: $20
- Filing of Articles of Organization: $70
- Franchise fee: $800 (waived for LLCs formed in 2021, 2022, and 2023 for the first taxable year only)
Expansion of foreign LLCs: $70
Every business owner wants their company to be successful. With the benefits and advantages of setting up an LLC in California, start-up CEOs may want to consider choosing this option.