How to Start an LLC in California
To start an LLC in California you must file Articles of Organization with the California Secretary of State, pay a $70 filing fee, and get a tax ID from the IRS. The complete steps to forming a California LLC are as follows:
- File California LLC Articles of Organization
- Pay a minimum of $70 to the California Secretary of State (+$5 for a certified copy)
- Wait for your certified copy of your approved Articles
- Get a Federal EIN tax ID for the LLC
- Create a California LLC Operating Agreement
- Take these documents to the bank and get a California LLC bank account
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California LLC Articles of Organization free download. When you're done filling out the form, submit it to your state.
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How to File California LLC Articles of OrganizationTo form a California LLC, you file the LLC Articles of Organization in the following steps:
What is the Cost of a California LLC?
The filing fee for California’s Articles of Organization is $70, plus $5 if you need a certified copy. If you hire Northwest to form your LLC, your total out-the-door cost, including a full year of registered agent service, is $315 ($755 expedited).
How much does an LLC in California cost each year?
On average, small LLCs shell out roughly $810 a year for their franchise tax and yearly report. The California franchise tax is a minimum of $800 a year. The Statement of Information is $20 every other year (so you can think of it as $10 a year). High-earning LLCs are also subject to an additional fee called the Annual LLC fee.
What are the California LLC taxes?
California taxes aren’t exactly straightforward. For California’s personal net income tax, there are 10 tax brackets, which are updated every year. For single filers, the tax rates range from 1% (for income under $8,015) to 13.3% (for income over a million bucks).
$1,000,001 +: 13.3%
Don’t worry, it’s not quite as much as it looks—you only pay the tax rate on the portion of your income that falls in that bracket. In other words, if you report $10,000 in taxable income, you don’t pay 2% of $10,000 ($200). Instead, you pay 1% on the first $8,015 of your income ($80.15) and 2% on the remaining $1,985 ($39.70) for a total of $119.85—much better than two hundred bucks.
Sales tax is also pretty variable. The state sales tax rate is 7.25%, but cities and counties typically tack on their own sales tax as well. The combined state/county/city sales tax rate maxes out at 10.25% in cities like Long Beach and Santa Monica but remains under 8% in cities like Red Bluff and Sonora.
Is a California LLC Registered Agent Required?
Yes, California LLCs are required to have and maintain a registered agent. You could appoint yourself or a friend—but there are a few downsides. You’ll have to list the address where you’ll be during business hours in your Articles of Organization—a public document that anyone can view, include data miners and solicitors. At the very least, you’ll end up with loads of junk mail. You’ll also actually have to BE at the address you list. If a process server can’t get ahold of you, that’s on you. And, if anything changes—you move locations, the friend you appointed bailed—you’ll have to submit a new Statement of Information and pay the $20 fee.
Or, you could hire a registered corporate agent service like us. At Northwest, our address goes on your Articles of Organization. We deal with all the spam. We’re available during business hours. As your LLC grows and changes, you can keep a consistent address on state records without constant updates.
California LLC Versus California Corporation:
When it comes to starting and maintaining a business in California, LLCs are cheaper than corporations. The filing fee to start a California corporation is $100 ($30 more than an LLC). For corporations, the Statement of Information also costs more ($25 instead of $20) AND is due every year instead of biennially.
Other than that, there’s not much of a difference. Both LLCs and corporations pay the $800 franchise tax. Neither business type is tied to their default tax type, making any tax comparisons a somewhat moot point. California LLCs, for example, can elect to be taxed as S or even C corporations (avoiding the Annual LLC Fee but incurring other tax obligations).
The business type you choose really boils down to how you want to run your business. Many small business owners opt for LLCs as they’re typically easier to operate. They have fewer formalities—no requirements for directors, officers or annual meetings. If you’re considering a corporation, however, here’s some information on California incorporation.
Do I Need a Tax ID Number (EIN) for a California LLC?
Odds are you’ll need an EIN or at least find one useful. You’re required to have an EIN if you have employees or if you submit specific tax filings (like Alcohol/Tobacco/Firearms returns). Even if you don’t technically require one though, an EIN can make your life a little easier. With an EIN, it’s easier to open a bank account. It’s easier to establish credit with vendors. Having an EIN can also help you protect your personal information. On applications for loans, accounts, or credit, you can often put your EIN instead of your personal social security number. Basically, it doesn’t hurt to get an EIN just in case—they’re free from the IRS (or you can pay us to get one for you if you’re sick of paperwork at this stage in the game).
Does a California LLC Need a Business License?
Yes, your California LLC is required to have a business license. Licenses are issued at the local level, so you’ll have to apply for a license from the city or county where your LLC is registered. Requirements, fees, and renewal times are vastly different throughout the state, so a little investigation into your area’s specifics could save you from sticker shock down the road.
What is the California LLC Franchise Tax?
The California franchise tax is a tax for the privilege of doing business in California. For LLCs taxed as partnerships or disregarded entities, the fee is a flat $800. For LLCs taxed as corporations, the $800 is a minimum. S corporations pay a 1.5% tax on net income and C corporations pay an 8.84% tax on net income. So, if your tax on net income comes out to less than $800 (i.e. if your net income is less than $53,300 for an S corp or $9,045 for a C corp), you’re still stuck paying at least $800. A lot of people try to avoid the California franchise tax, but California has really double-downed on franchise tax regulations, making it nearly impossible to avoid.
What is a California LLC Statement of Information?
The California LLC Statement of Information is a report you have to spend $20 on every other year to ensure the California Secretary of State has your most current ownership and contact information. Your first one is due right after you register your LLC (within 90 days).
What is the California Annual LLC Fee?
In addition to all the other taxes and fees, high-income LLCs have yet one more fee to pay each year. It’s a separate, flat fee—$900, $2,500, $6,000, or $11,790 based on the LLC’s income.
- $250,000-$499,999: $900 fee
- $500,000-$$999,999: $2,500 fee
- $1,000,000-$4,999,999: $6,000 fee
- $5 million +: $11,790 fee
If you think your LLC will owe the fee, you’ll have to make an estimated payment, filing Form FTB 3536 (and if you’re wrong and don’t pay it or pay too little, you’ll not only have to pay the fee but an additional 10% penalty for failing to be a psychic).
California LLC Articles of Organization Requirements
Include “Limited Liability Company” or an abbreviation in your LLC’s name. You can’t choose a name already in use, and you can’t include any words that suggest you’re a bank, insurance company, or corporation. Sure, “Joe’s Muscle Insurance Fitness Center LLC” is a sweet name for a gym, and it may seem unlikely that visitors will attempt to take out an insurance policy from confused personal trainers. However, you’ll just have to let that dream go, as California is not having it.
Your business address doesn’t have to be your store or office, but it does have to be a street address in California. Like all the info you put in your Articles, the address you list will become a part of the public record. So at the very least, don’t make the mistake of putting your home address. Hire us and you can use our address throughout your Articles of Organization.
You can list either an individual or a registered corporate agent like Northwest.
Your registered office is where your registered agent accepts service of process. Individual agents have to list their full name and California street address. Again, this info becomes part of the public record. Avoid the spammers and weirdos that come with a public address and use our address when you hire Northwest.
You have to choose if your LLC will be managed by all its members, by one manager, or by more than one manager. Managers aren’t required to be members of the LLC, but it’s okay if they are. If you’re not interested in running the day-to-day operations of your LLC, it would be better to appoint a manager—however, know that you can’t have your cake and eat it too. If you hand over decision-making powers to managers, the only power you have left is to vote on or remove managers.
California LLC Organizer
The word “organizer” throws a lot of people off—who exactly is the organizer? The organizer is just the fancy title for the person or business signing and submitting your Articles. It doesn’t have to be anyone in the LLC, like a member or manager. When you hire Northwest to form your LLC, we’ll be your organizer.