Starting a business, in general, is an exciting and overwhelming experience, particularly in a state like California, which offers an abundance of opportunities. When you are researching how to start an LLC in California, you are already one step closer to having a good start to your business.
A Limited Liability Company (LLC) enjoys liability protection as well as flexible management and a relatively easy process of formation.
But before diving into it, it is good to know the essential elements that can affect your success. Regardless of whether you want to open a restaurant, start an online store, or even establish a consulting service, the following are the top factors to consider.
1. Choosing the Right Name for Your LLC
The name of your business establishes the brand. The name you choose should be different and unique from already registered names of businesses, and also under state regulations. It must contain corporate identification, such as LLC or limited liability company, and not a restricted word such as bank and insurance.
Use the business database on the California Secretary of State before filling out any documents to ensure that the name you want is available. It is also prudent to have one or two alternatives in case the name that you like is taken.
2. Filing Articles of Organization
Once you’ve chosen a name and a registered agent, the next step in how to open an LLC in California is to file the Articles of Organization (Form LLC-1) with the Secretary of State. This one-page form includes essential details like your business name, address, management type, and registered agent info. A $70 filing fee applies.
After approval, your LLC is officially recognized as a legal business entity in California.
3. Deciding on a Management Structure
An LLC in California can be either member-managed or manager-managed. In a member-managed structure, all owners (members) actively participate in daily operations. A manager-managed LLC, on the other hand, delegates management duties to one or more appointed managers, who can be members or external professionals.
If you’re starting a restaurant business, member management might be a good option if you and your partners plan to be hands-on. But if you’d rather focus on expansion or other ventures, appointing a manager could be more efficient.
4. Submitting the Statement of Information
Within 90 days of filing your Articles of Organization, you must also submit an initial Statement of Information (Form LLC-12). This form collects general business details, like your business address, member or manager names, and type of business activity.
This statement must be renewed every two years to keep your LLC in good standing.
5. Designating a Registered Agent
California law requires your LLC to have a registered agent, someone who receives legal and government documents on behalf of your business. This can be a member of the LLC, a trusted individual, or a third-party service.
Note that the agent must have a physical address in California (no P.O. Boxes allowed). Using a third-party registered agent service can help maintain your privacy and ensure you never miss important notifications.
6. Creating an Operating Agreement
While not required to be filed with the state, California law mandates that LLCs create an Operating Agreement. This document outlines ownership percentages, management roles, profit-sharing rules, and decision-making procedures.
If you’re starting a restaurant business, the operating agreement is especially important; it can help avoid disputes over daily responsibilities, payroll, and business direction among co-owners.
7. Getting an EIN
An Employer Identification Number (EIN) from the IRS is essential for tax purposes, even if your LLC has no employees. You’ll need it to open a business bank account, file taxes, and manage payroll. Applying is free and can be done online.
8. Obtaining Necessary Licenses and Permits
California requires every LLC to secure a general business license, and possibly additional permits depending on the industry. For example, starting a restaurant business may require health department permits, food handler certifications, and liquor licenses.
Because regulations vary by city and county, check with your local authorities to ensure you’ve obtained everything required to operate legally.
9. Understanding Tax Obligations
All LLCs in California must pay an annual franchise tax of at least $800, regardless of income. Additional taxes may apply depending on your revenue. Make sure you budget for this annual expense and consult a tax advisor to ensure compliance.
Conclusion
Forming an LLC doesn’t have to be confusing. Platforms such as MyCorporation can help you file all the required documents, serve as your registered agent, and provide guidance when it comes to business licenses.
Let the professionals make it easier to allow you to concentrate on the development of your dream business.
Whether you’re starting a restaurant business or launching your next big idea, knowing how to open an LLC in California and doing it right lays the foundation for long-term success.
