LIMITED LIABILITY CORPORATION
A limited liability company (LLC) is a US business structure that offers the personal liability protection of a corporation with the pass-through taxation of a sole proprietorship or partnership.
Forming an LLC is the simplest way of structuring your business to protect your personal assets in the event your business is sued.
LLCs can be owned by one or more people, who are known as LLC “members.” An LLC with one owner is known as a single-member LLC and an LLC with more than one owner is a multi-member LLC.
8 STEPS TO FORMING YOUR OWN LIMITED LIABILITY CORPORATION
1. Choose a Name for Your LLC
You must choose a name for your LLC that is unique. It cannot be the same as, or too similar to, an existing name in the Secretary of State records, and it cannot be misleading to the public.
Names may be checked for availability by searching the Secretary of State’s business name database. An available name may be reserved for up to 60 days by filing a Name Reservation Request form. The form must be postal mailed or hand delivered to the Secretary of State’s office.
Under state law, an LLC’s name must end with Limited Liability Company or the abbreviations LLC or L.L.C. The words Limited and Company may be abbreviated to Ltd. and Co. The LLC’s name may not contain the words bank, trust, trustee, incorporated, inc., corporation, corp., insurer, insurance company, or any other words suggesting that it is in the insurance business.
The Secretary of State provides additional, important information regarding business name availability both online and in a downloadable publication (Business Entity: Name Regulations & Additional Statutory Requirements and Restrictions).
2. File Articles of Organization with the Secretary of State
A LLC is created by filing Articles of Organization, Form LLC-1, with the Secretary of State’s office. The articles must include the LLC's name, its purpose, information on how it will be managed, its address, and the name and address of its registered agent.
You can complete Form LLC-1 online or you can mail or hand deliver the form to the Secretary of State’s office. The filing fee is generally around $70. With hand-delivered filings at the Secretary of State's office, you can request expedited filing for an additional fee.
3. Choose a Registered Agent
Every LLC must have an agent for service of process (called a registered agent in other states). This is an individual or company that agrees to accept legal papers on the LLC’s behalf if it is sued. An LLC may not serve as its own agent for service of process. The agent should agree to accept service of process on behalf of the limited liability company prior to designation.
Individual agents must reside in the state LLC is established within and their street address (not a P.O. box) must be listed in the LLC’s articles of organization. The agent may be a member, manager, or officer of the LLC, but doesn't need to be affiliated with the LLC.
The Secretary of State maintains a list of private service companies (commercial registered agents) that will act as agent for service of process for a fee.
4. Decide on Member vs. Manager Management
Most small multi-member LLCs choose to be managed directly by their members, but LLCs can appoint a manager or small group of managers to manage the LLC - somewhat like a board of directors oversees a corporation. Managers vote on key issues such as taking out a loan, purchasing real estate, or changing strategic plans.
5. Prepare an Operating Agreement
An LLC operating agreement is not required by the Secretary of State, but is highly advisable. If you've already formed an LLC, Nolo offers an LLC operating agreement that you can create online.
6. File Biennial Report
Every local and foreign LLC registered in your state must file a Statement of Information, Form LLC-12, with the Secretary of State within 90 days after filing their articles of organization. Thereafter, a Statement of Information must be filed every two years (biennial). The filing period is the calendar month when the original articles of organization were filed and the prior five calendar months. You can file the statement online or print it out and mail or hand deliver it to the Secretary of State. The filing fee is $20.
The Statement of Information must include:
the LLC’s name and Secretary of State file number
the name and address of the LLC’s agent for service of process
the street address of the LLC’s principal executive office
the LLC’s mailing address, if different from the street address of its principal executive office
the name and complete business or residence addresses of any manager or managers and chief executive officer, if any; if no manager has been elected or appointed, the name and business or residence address of each member
a valid email address, if the LLC chooses to receive renewal notices and any other notifications from the Secretary of State by electronic mail instead of by United States mail, and
the general type of business that is the LLC’s principal business activity.
7. Pay Your California State Tax Obligations
All LLCs and foreign LLCs must pay state taxes to the Franchise Tax Board (FTB) if 1) they are organized, registered, or conduct business in said state; and 2) they have not elected to be taxed as a corporation—that is, they are taxed as a partnership or sole proprietorship (disregarded entities). LLCs taxed as corporations must comply with state corporate tax rules.
Annual minimum tax: All LLCs doing business in state must pay an annual minimum franchise tax of $800. You submit the annual tax to the Franchise Tax Board using Form 3522, Limited Liability Company Tax Voucher.
Additional taxes: LLCs with net income over $250,000 must pay an additional fee based on their total annual income.
8. Comply With Other Tax and Regulatory Requirements
You will need to comply with any other tax and regulatory requirements that apply to your LLC. These may include the following:
EIN: If your LLC has more than one member, you will need to get an IRS Employer Identification Number (EIN) for it, even if the LLC has no employees. If you form a one-member LLC, you must obtain an EIN for it only if it will have employees or you elect to have it taxed as a corporation instead of a sole proprietorship (disregarded entity). You may obtain an EIN by completing an online application on the IRS website or by filing IRS Form SS-4. There is no filing fee. Business licenses: Depending on what type of business your LLC is engaged in and where it is located, you may need to obtain other local and state business licenses.
Sales and employer taxes: In some cases (for example if you will be selling goods and collecting sales tax or if you have employees), you’ll need to register with the appropriate state taxing authority. For example, if you will be collecting sales tax, you'll have to register with State Board of Equalization (BOE), which you can do online or in person at a BOE field office. For employer taxes, register with the Employment Development Department (EDD).