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California LLC: What You Need to Know

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California LLC: What You Need to Know

CALIFORNIA LLC: WHAT YOU NEED TO KNOW

When you start a new business, one of the most important decisions you must make is to determine which type of legal structure best suits the needs of your business. The legal structure of your business will determine your tax rate, management obligations, and other important factors of your business. One of the most popular entity types is a Limited Liability Corporation, or LLC.

A California limited liability company (LLC) is a form of business organization that combines the limited liability of a corporation with the flexibility of a partnership. LLCs are formed by filing articles of organization and paying a filing fee to the California Secretary of State.

The LLC has many benefits and advantages, including limited personal liability for the owners, tax simplicity, flexibility of management, and the ability to raise capital. The LLC is a popular choice for small and medium-sized businesses because of its relative simplicity and flexibility.

Things to Consider When Forming an LLC in California

The LLC’S Name

The first step is to choose a name for your LLC. There are requirements for naming your business in California. Keep the following in mind when choosing a name.

  • The name must include “LLC,” “L.L.C.,” “Ltd,” “Co.” or “Limited Liability Company”
  • You cannot choose the same name as an existing registered LLC in California.
  • You may not use “trust,” “incorporated,” or “corporation.”
  • The name cannot contain the words “State Department,” “FBI,” CIA, “Treasury,” or other words used in the name of a government agency.
  • Words that suggest your business is in the insurance or banking industry are not permitted.

Determining the Registered Agent

A registered agent is an entity or person you authorize to receive service of process and other legal paperwork on behalf of your business. You are required to name a registered agent in California. To be a registered agent, they must provide registered agent services, have a California address, and be available to receive and accept documents during regular business hours.

File the Articles of Organization

The articles of organization state the basic information about your company. The information you will need to draft your articles of organization is:

  • The name and address of your business
  • The purpose of your business
  • Your registered agent’s name and address
  • The management structure of your business
  • The incorporator’s signature

Receive a Certificate From the State

After you receive a certificate confirming that your LLC is registered as a legal entity, you may apply for an EIN (Employer Identification Number), open a bank account for your business, and obtain any necessary business licenses.

Have An Operating Agreement Drafted

An operating agreement outlines how your LLC will conduct business, how it is managed, determines initial financial contributions, and establishes the LLC’s formalities. An operating agreement can help settle potential future financial disagreements and possible litigation. If you don’t have an operating agreement and you end up in litigation, the Court will make its decision based on California law which may not always be what is in the business’s best interest.

File A Statement of Information With the Secretary of State

A Statement of Information must be filed with the Secretary of State. This statement includes the following information about your LLC.

  • Name and the file number from the Secretary of State
  • Registered agent’s name and address
  • Principle office address
  • Mailing Address
  • Name and address of managers or CEO, or the name and business address of all members
  • Email address
  • Principle business activity

Pay the Franchise Tax Fee

There is an annual Franchise Tax Fee of $800 to conduct business in California. Even if your business doesn’t earn any income, you are still required to pay the fee each year. If your gross revenue is greater than $250,000, your annual fee will be higher.

If your LLC is formed between 2021-2023, your business is exempt from the $800 annual franchise fee for the first year. However, you will still have to pay it in your second taxable year.

How a Business Lawyer Can Help

When done correctly, an LLC can protect you from personal liabilities arising from your business. Enlisting the services of a qualified business lawyer can ensure that everything is completed properly. Here are some other benefits of hiring a lawyer to assist you in forming your LLC.

They Can Help Determine if an LLC is Right For Your Business

While an LLC provides many benefits, there are other factors you want to consider when deciding on the structure of your business. For example, ownership issues, taxation, and future partnerships.

Your business lawyer can help you decide if an LLC fits the goals and needs of your business. They can walk you through the pros and cons of each type of entity so you can make the best choice for your situation.

They Can Ensure Everything is Completed Properly

As you can see from above, there are a lot of necessary steps required for your LLC to become active and available for you to conduct business under. Failing to properly prepare the necessary documents in a timely manner can cause significant delays for your business.

Your business lawyer can help ensure that all documents have been completed and submitted properly to ensure that your LLC is set up effectively. 

They Can Provide Legal Advice

When you’re building a business, it’s likely that you don’t have the extra funds to hire in-house counsel, leading you to rely on information found on the internet in an attempt to DIY your LLC. While internet research is a great way to gain background information on the process to determine if a business lawyer knows what they’re talking about, you’re taking a considerable risk when using that information to form your LLC alone.

The California Secretary of State can only provide you with basic instructions, such as where to send your documents, but they can not give you legal advice. The only person able to legally give you legal advice is a California licensed attorney.

Turn to Rokita Law For Expert Legal Services

If you’re starting a business in California, you want to enlist the services of an experienced, reputable business lawyer. 

Amanda Rokita is an attorney and the founder of Rokita Law. She knows firsthand what it takes to start and operate a business. She can help protect you and your business by using her creative problem-solving skills and strategic solutions based on her client’s specific needs.

For legal counsel that stands up for your best interests, contact us today.