You’ve probably planned to open an LLC in the United States. However, you still need to decide in which of the 50 states you’ll do it.
Or perhaps you’ve already decided to do it in California because it’s where you reside, but you want to know if it’s really a good option.
To answer all your questions, we’ve decided to write this article on how to open an LLC in California.
We’ll show you the benefits, the step-by-step process, and address your most frequently asked questions.
Keep reading.
Requirements and Steps to Open an LLC in California
1. Have a Registered Agent
A registered agent serves as the individual or company that receives legal correspondence for your business, such as:
- Tax forms.
- Reminders.
- Legal documents.
- Official government correspondence.
- Lawsuit notifications.
- Legal process notices.
This is one of the requirements to create your LLC in California, and to comply with this, you could:
- Be your own registered agent.
- Choose a friend or family member who can be the registered agent for your LLC.
- Hire a registered commercial agent.
2. Operating Agreement
This is an internal document that is kept within your business records only.
It lists the members or owners of the LLC along with the percentage of ownership for each.
Additionally, it also details the distribution of profits and losses of the company, how taxes are paid, and the process for managing the business.
To establish your LLC in California, you must have this document.
3. Articles of Organization
This is a document you need to submit to the state office when creating your LLC in California.
Once this document is approved, your company will be recognized as a legal business entity.
Follow these steps to submit it:
- Complete the LLC-1 form
- Send it by mail to the following address: PO Box 944228, Sacramento, CA 94244-2280.
- Wait for approval (typically takes 3 to 5 business days). When approved, they will send you the approved document and a welcome letter.
4. Federal Employer Identification Number (EIN)
The EIN number is a unique identification number assigned to a business entity to easily identify it with the IRS.
This number is used for:
- Filing taxes.
- Opening bank accounts.
- Applying for licenses and permits.
- And more.
To apply for an EIN, you need to download and fill out the SS-4 form and send it to the IRS by mail or fax. Then, you just need to wait for approval.
If you don’t have an EIN because you are a foreigner, you need to apply for an ITIN number first. With these details, you can then apply for your Federal Employer Identification Number.
5. File Your Information Returns
“`Within California, all LLCs are required to file an Initial Statement of Information within 90 days of creating the Limited Liability Company.
This information statement costs $20 and can be filed in person, by mail (by downloading the LLC-12 form and sending it to the state along with a $20 check or money order), or online (by filing your LLC Information Statement online through the Secretary of State).
6. Annual $800 Franchise Tax
Another requirement for opening an LLC in California is that you must pay an annual $800 franchise tax.
To make this payment, you should do it through the California Franchise Tax Board using form 3522.
This annual payment must be made on the 15th day of the fourth month after the start of your LLC’s fiscal year.
For example, if your LLC started on January 1, you must pay the $800 by April 15.
What are the advantages of opening an LLC in California?
1. Your company name will be uniquely yours
It happens that in some states in the US, companies can choose their trade name or alias even when someone else has that same name registered. In California, this doesn’t happen; if you register your LLC’s name, no one else can open a company in this state with the same name.
2. Forget about double taxation
Most states have to pay income taxes. In California, you are exempt from this tax. Only the members or owners of the LLC must individually pay this tax when they receive the company’s profits.
Disadvantages of forming an LLC in California
- Lack of privacy: Incorporation documents are publicly registered. This means that people can see your personal information when opening your LLC in California.
- Very high income tax: The first state with the highest income tax is New Jersey, followed by California. We’re talking about an 8.8% tax on profits.
- Highest franchise tax in the country: In this case, it does have the highest franchise tax rate ($800 per year to renew your registration).
- The process is complicated: Not everyone can open an LLC in California because fields requiring a professional license, such as engineering, medicine, law, etc., cannot open their LLC but must operate as a Corporation.
Frequently Asked Questions
What is an LLC?
In which state is it most recommended to open an LLC?
Are you ready to open your LLC in California?
We hope this article has been valuable to you, and you can begin the process of opening your business in the United States.
If you’d like to explore related content, we invite you to visit our blog.
