Limited Liability Company (LLC) is defined as a business with limited liability for its owners, called members.
LLC has become one of California's most popular business structures because it offers flexibility and minimizes taxes and costs.
In California, Limited Liability Companies are registered with the California Secretary of State and not the California Franchise Tax Board.
The initial fee to register an LLC is about $70, with a yearly renewal fee of about $800.
How Do I Start an LLC in California?
To start an LLC in California, first, you have to determine the business structure of your LLC. In any case, you must follow California Secretary of State filing rules.
To do this, you will need assistance from a California registered agent service that can help submit the paperwork.
You can apply directly through LegalZoom's online application service to get started and file your Articles of Organization and pay the necessary fees. It takes about 4-6 weeks to complete the filing.
The California Secretary of State provides a downloadable "Certificate of Information" form that you must file with your Articles of Organization to register your business name and create an official record for your company in California.
The Articles will not be processed until this step is completed and can take about 2-4 weeks after filing to receive by mail.
Here Are Some Steps You Need to Take To Form an LLC in California
First, your business will need to file its articles of organization with the California Secretary of State (SOS).
The filing fee is about $70, and the form may be filed online or over the counter at any Secretary of State branch office.
You'll need to include your name, the name of your LLC, and the county where you'll be doing business.
After filing your articles of organization, you'll need to create an LLC operating agreement.
This should include the management structure of your company, how profits and losses will be allocated, and other key information.
You can use a template created by Nolo, or an attorney may draft one for you.
As soon as the operating agreement is complete, it should be signed by all members of your LLC.
The person who signs the documents must have a general authority to do so on behalf of the LLC.
After filing your articles of organization and creating an operating agreement, you'll need to file a Federal Tax ID form with the California Secretary of State as well as a separate application for an EIN from the IRS.
Once you've completed all of these steps, the last thing to do is pay your annual franchise tax.
Prepare an Operating Agreement
An LLC operating agreement is a legal document that establishes the members' rights, powers, duties, and liabilities.
California requires an LLC operating agreement to be filed along with the articles of organization.
Maintaining an LLC operating agreement can help protect you from personal liability in California by establishing what your financial interests in your company are.
The California Secretary of State offers a downloadable California LLC Operating Agreement Form that you can use to prepare your California LLC operating agreement.
How Much Is LLC Tax in California?
The California franchise tax board calculates the amount of tax to be paid by an LLC annually.
Still, some factors are taken into consideration to determine how much you will have to pay.
Regardless of whether their business generates revenue or not, all LLCs are required to pay an annual franchise tax of $800.
Each year, the California Franchise Tax due is on or before April 15th. If you fail to file by the deadline, the state may charge you late fees and penalties, and your LLC may be dissolved.
In addition, if your company's net taxable income is $250,000 or greater, you must make an additional $900 payment.
It's possible that as your income rises, that number will increase as well.
If your company's annual revenue is less than $250,000, you won't have to worry about this extra payment.
On the other hand, sales tax in California is a complicated topic, and it differs depending on what you are selling and whether you are required to collect it in the first place.
A business must register with a Board of Equalization and may be required to charge sales tax on its transactions when the following criteria are met:
- The seller has gross receipts from all taxable property sold in California
- The seller's principal business activity is "the sale or lease of tangible personal property."
- The item is sold in California
Bare Minimum Cost to Start an LLC in California
California is known to have a firm but simple business system. California state law requires businesses to file LLC paperwork regularly with the California Secretary of State to keep their status active.
California filing fees are relatively inexpensive compared to other states at $70 for the initial filing fee and annual corporate tax payment of about $800 annually.
This bare minimum cost only accounts for the California LLC filing fees and annual tax to maintain California LLC status.
California fee payers may also have to pay a county filing fee depending on where they incorporate.
California does not separate minimum taxes from maximum taxes, which can lead California businesses to be fined a small amount for underpayment of California corporate income tax since it is based on profits.
California's corporate tax brackets range from 1.5% to 8.84% California state income tax. California does have filing deadlines that need to be met in order to maintain California LLC status.
Additional Costs to Set Up an LLC in California
Starting a California LLC requires more than money. Additional fees and legal documents need to be submitted, many of which must be notarized or signed under California law.
California has its own tax laws, making it even harder for an out-of-state business owner to start and maintain a California LLC.
Setting up California LLC incurs additional costs apart from applying for tax exemption.
California is one of the few states to require an annual report, which is due during the anniversary month of the LLC's registration date.
California also has a relatively low filing fee that starts at $20 but can be as high as $800, depending on the company's authorized capital stock.
California also requires an annual minimum tax of $800 that is paid every year regardless of whether LLC is making a profit or not.
The legal presiding fees are another consideration that can go beyond attorney charges, especially if there are complex business transactions.
California's Corporation Code dictates that California LLCs are required to have two different types of directors: managing and member.
California also requires California LLCs to have at least one known information for the California Secretary of State's office.
Similar Article: Best LLC Formation Services in California
What Is the Cheapest Way to Get an LLC?
The cheapest way to get an LLC is through LegalZoom. Legal Zoom charges $119 to register your business with the state and includes a free registered agent service for one year, which costs $69 extra if you try to do it separately.
Be sure not to miss out on any special offers as they usually run promotions during certain times of the year.
What Is the Best Way to Get an LLC?
The best way to get an LLP is through LegalZoom, which we have already mentioned.
However, if you are planning on utilizing a registered agent service, it's best to contact them to see which company they recommend.
Is LLC Worth It in California?
LLC is worth it in California. By setting up an LLC, you are providing yourself and your company with limited liability to protect your assets.
Be sure to fill out all the necessary paperwork and register your business with the state, as this is where people who might sue you will try to find you first.
Fees for Business License
The fees for business licenses vary depending on the city, so it is best to check with your local government.
The state of California charges $800 for a limited liability company, including the filing fee, the formation fee, and the name search fee.
California Attorney Fees
Attorney fees vary depending on the circumstance. A reasonable attorney will charge between $100 - $300 per hour, which could cost you tens of thousands of dollars in legal bills if your case is complicated.
In California, forming an LLC will cost you not just money but also time and effort.
However, you can rest assured that forming an LLC in California is worthwhile and will provide you with numerous benefits.