A California Limited Liability Company (also known as an LLC) is a legal business structure that is among the most common types of small businesses in California. There are some advantages to forming an LLC for small companies, such as limited personal liability and tax advantages. Forming a business entity is important because it lays the foundation for how businesses are organized, taxed, and legally protected.
A name for an LLC must meet a few qualifications:
Every LLC in California is required to have a registered agent. A registered agent can either be an individual or a company that accepts legal and official documents on the business's behalf. The rules for individuals to serve as registered agents in California are: they must be 18 years or older, must be a California resident, have a physical address in California, not a P.O. box, and are available to receive documents during regular business hours.
The next step to establish an entity as a legal business is to file the Articles of Organization. The required document is Form LLC-1, which needs to be filled out per the instructions then sent in with a $70 filing fee online, by mail, or delivered in-person to the Secretary of State's office located in Sacramento. Once the State has received the filing, the approval process takes around 3-5 business days.
The State of California requires the filing of the Statement of Information Form LLC-12 within 90 days of registering and then every two years after that to keep a business's public record accurate. The form has a $20 filing fee and can be submitted online, by mail, or delivered in-person to the Secretary of State's office.
California requires all LLCs to have either a written or verbal Operating Agreement. An operating agreement is a legal document that covers the ownership, operating procedures, and purpose of an LLC. A copy of it should be with business records, although a verbal agreement is allowed as well.
An EIN or Employer Identification Number is a nine-digit number issued by the Internal Revenue System (IRS). An EIN is essential for Federal and State tax purposes, opening a bank account for business, and for hiring employees. Obtaining an EIN is free of charge and can be claimed by a business owner after the formation of a company. Requesting an EIN from the IRS can be done online, by mail, or fax.
Every California LLC must pay an $800 Franchise Tax every year regardless of total revenue or activity. This payment is made to the California Franchise Tax Board using Form 3522 (LLC tax voucher). The due date is as follows, "The annual LLC tax is due and payable by the 15th day of the 4th month after the beginning of the LLC's taxable year (fiscal year) or April 15th (calendar year)*."
Forming an LLC is not a process completed in a single day. This simple guide is intended to show the process of creating an LLC entails. The formation of any business can benefit from having an attorney to guide the process. Contact the Berglund Group today for a free consultation.
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