Limited Liability Company “LLC” is a popular business entity form that is very common in California.
LLCs are treated as pass-through tax entities, meaning you don’t pay income taxes. An informational report is filed annually, and the income or loss passes to the individual owner to be reported with their personal income taxes. However, forming an LLC in California is not free. California mandates a minimum $800 franchise tax, (see table for income ranges). Think of this as rent for doing business in California.
These are the steps to form an LLC
Name – name the LLC and make sure that name is available. Do a business search to see if that name available, if so you can use it.
Articles of Organization –this form is filed with the California Secretary of State. This form includes information such as: LLC name, address, number of members. After several weeks (rush filing is available), the state returns the filed articles or organization back to you with an LLC number. Cost to file this is $75.
Agent for Service of Process – also know ad the registered agent. This is a person or a company that accepts service of process of behalf of the LLC. Meaning if there is a lawsuit or any legal correspondence, all mail and correspondence go to the registered agent. Registered agent’s responsibility is to communicate the information to the LLC member(s).
Operating Agreement – California requires for every LLC to draft an operating agreement. This is a legal document that outlines the ownership and member duties of the LLC. The operating agreement is kept for internal records. Usually drafted by a lawyer.
Employee Identification Number (EIN) – also known as a Tax ID. Apply for a EIN number with the IRS. This is done electronically and free of charge, and gets generated instantly.
Statement of Information – as it states, it’s a statement of information, which includes information such as: LLC name, member(s) name, address, service of process, type of business. This is filed electronically with the state, and must be filed within 90 days of registering with California Secretary of State. Cost to file this form $20, and must be filed semi-annually.
Bank Account – once the articles of organization are returned with the assigned LLC number, and an EIN number is provided by the IRS, open a separate business bank account with a financial institution.
City License – depending on the city you are registered with; a city license must be obtained from that city.
Insurance – general, professional and workers compensation insurance policies may be necessary depending on the activity of the business and if it has employees.
Accounting – implement an accounting process, keep business and personal books are records separate, and maintain on monthly basis.
File Annual Taxes – California LLC taxes are due and payable by the 4th month after the beginning of the LLC’s taxable year. April 15 for calendar year.