California LLC attorney explains from A to Z how to form a do-it-your-self CA LLC with links to all CA LLC forms.
At first glance it is very easy to form an LLC in California. To create a California LLC you:
- Prepare and file the California Secretary of State’s (“SOS”) one page form Articles of Organization (SOS Form LLC-1) with the at Secretary of State, Business Entities, P.O. Box 944228, Sacramento, CA 94244-2280.
- Pay the filing fee of $70, but if you want a certified copy of the filed Articles of Organization pay $75. Make the check payable to Secretary of State.
- Prepare and file a Statement of Information (SOS LLC Form-12) within 90 days of the date of filing the Articles of Organization. See Corporations Code Section 17702.09. The LLC must also file this form every other year after the year of its formation. The failure to file this form timely will subject the LLC to a $250 penalty. The filing fee is $20 payable by a check made out to Secretary of State. Mail the completed form and check to: Secretary of State, Statement of Information Unit, P.O. Box 944230, Sacramento, CA 94244-2300.
- Pay the $800 minimum franchise tax to the California Franchise Tax Board not later than the 15th day of the fourth month after the tax year begins. For example, if a CA LLC is formed in June of 2015, the franchise tax is delinquent after September 15, 2015. See Cal Rev. & Tax Section 17941. If the LLC earns more than $250,000 in any tax year it will also be subject to California’s gross receipts tax. Cal Rev. & Tax Section 17942 and discussion number 4 below.
- Prepare an Operating Agreement and have all members sign it. California LLC law does not require that the member(s) of a California LLC sign an Operating Agreement, but if your LLC has multiple members who are not husband and wife or registered domestic partners the members are asking for big trouble. See “Why All California LLCs Need a Written Operating Agreement.” For the reasons set forth below, we recommend that the members of all California LLCs sign an Operating Agreement.
Detailed Explanation of How to Form a California Limited Liability Company
1. LLC Name. Pick a name for your LLC after checking the LLC name rules provided by the California Secretary of State and searching for the same or similar names on SOS’ business search database. Take your best guess that your desired name will not be rejected by the SOS when the Articles of Organization are filed. The LLC’s name must not be a name that is “likely to mislead the public” and must be “distinguishable” in the records of the Secretary of State from the name of an existing LLC or an LLC name that has been reserved by another party. The LLC’s name must comply with each of the following rules required by California Corporations Code Section 17701.08:
- The California LLC’s name must end with one of the following: LLC, L.L.C., Limited Liability Company, Limited Liability Co., Ltd. Liability Company, or Ltd. Liability Co.
- The name may not include the word bank, trust, trustee, incorporated, inc., corporation, or corp.
- The name may not include the word or words insurer, insurance company, or any other words suggesting that the limited liability company is in the business of issuing policies of insurance and assuming insurance risks.
More About Name Reservations?
California LLC law authorizes people or companies to reserve a name for a new California limited liability company for 60 days. Unfortunately, the SOS does not accept online applications for name reservations. To reserve a name for your new CA LLC complete, sign and mail the California LLC Name Reservation Request Form to: Secretary of State, Name Availability Unit, 1500 11th Street, 3rd Floor, Sacramento, CA 95814. Include a check for $10 payable to Secretary of State. Only one reservation will be made per request form. You may list up to three names, in order of preference, and the first available name will be reserved for a period of 60 days. The remaining names will not be researched.
You can also hand deliver the Name Reservation Request Form to the Secretary of State’s office in Sacramento (1500 11th Street, 3rd Floor, Sacramento, CA 95814) or its Los Angeles regional office at 300 South Spring Street, Room 12513, Los Angeles, CA 90013. In addition to the $10 name reservation fee, each drop off request must include a separate, non-refundable special $10 handling fee. Note: The special handling fee is not applicable to requests submitted by mail.
Warning: The reservation of a proposed limited liability company name does not guarantee that the reserved name complies with all federal and state laws. At the time of filing the Articles of Organization with the reserved name, it is your responsibility to ensure that you have complied with all federal and state laws, including specific name requirements. In some circumstances, the reserved name may require additional approval or consent pursuant to applicable law at the time of filing. Name styles for particular types of business entities and the need for consent or approval required by law are not considered at the time of the name reservation. Therefore, no financial commitment relating to the proposed name should be made based on the reservation, since the business entity record is not created, qualified or amended until the appropriate documents have been submitted to and filed by the Secretary of State.
Translation: LLC names are reviewed for name compliance by the California Secretary of State when the Articles of Organization are filed. THE FACT THE SECRETARY OF STATE ISSUED A NAME RESERVATION DOES NOT MEAN IT WILL APPROVE THAT NAME FOR THE NAME OF A CALIFORNIA LLC WHEN THE ARTICLES OF ORGANIZATION ARE ACTUALLY FILED. The Name Reservation Request form states:
“no financial commitment relating to the proposed name should be made based on the reservation, since the business entity record is not created/qualified/amended until the appropriate documentshave been submitted to and filed bythe Secretary of State.”
Thus, reserving a name for your California LLC is a waste of time and money unless the sole purpose is to prevent somebody else from forming a California entity with the same name within the 60 day name reservation period. Before you reserve a name also consider that if the name seems to be available on the day you check then the name has been available from the beginning of time up to the moment of your check so what are the chances somebody will form a CA LLC with that name in the next few days or weeks?
2. Prepare and File California Secretary of State Form LLC-1
To form a California limited liability company you file the Articles of Organization (SOS Form LLC-1) with the California Secretary of State. Mail the completed and signed Articles of Organization to: Secretary of State, Business Entities, P.O. Box 944228, Sacramento, CA 94244-2280. Here are some tips about completing SOS Form LLC-1:
- California Secretary of State Warning at the top of SOS Form LLC-1: Note: Before submitting the completed form, you should consult with a private attorney for advice about your specific business needs. Of course we may be prejudiced, but we have had far too many people contact us after they formed their LLC without consulting an attorney because one or more owners are at odds and they do not have an Operating Agreement or their LLC’s Operating Agreement does not contain all the “bells and whistles” that might have prevented or solved the the operational problems.
- Item 1: Insert the name of the new LLC.
- Item 2: Do not alter the LLC’s purpose.
- Item 3a: List the street address of the limited liability company’s initial designated office in California. Do not use a P.O. Box address. Note: The designated office does not have to be the place of the limited liability company’s activity in California. Section 17701.13.
- Item 3b: If the LLC has a mailing address that differs from the address entered in Item 3a, insert the LLC’s mailing address here.
- Item 4: This question asks for the name of the new LLC’s “agent for service of process,” which is an individual (director, officer or any other person, whether or not affiliated with the limited liability company) who resides in California or a corporation designated to accept service of process if the limited liability company is sued. Note: A limited liability company cannot act as its own agent for service of process; only one agent can be listed; and the agent should agree to accept service of process on behalf of the limited liability company prior to its designation.
- Item 4a: Insert on the first line the name of the person or entity that will be the LLC’s agent for service of process in California. Do not insert the name of the new LLC on this line. The agent for service of process must be: (1) a person who resides in California or (2) an active corporation in California that has filed a certificate pursuant to Corporations Code Section 1505.
- Item 4b: If the agent for service of process listed in Item 4a is a person (not a corporation), list the agent’s business or residential street address in California. Do not use a P.O. Box address. Do not complete Item 4b if the agent for service of process is a corporation as the corporate agent’s address for service of process is already on file.
- Item 5: Check the applicable box to indicate how the California limited liability company will be managed. You must select one of the following types of management for the new LLC: (1) one manager, (2) more than one manager, or (3) all limited liability company member(s). Do not check more than one box.
- Organizer’s Signature: The Form LLC-1 must be signed by each organizer. If there is more than one organizer and you need more space, attach extra pages that are one-sided and on standard letter-sized paper (8 1/2″ x 11″). All attachments are made part of Form LLC-1. Note: The person signing Form LLC-1 need not be a member or manager of the limited liability company.
If Form LLC-1 is signed by an attorney-in-fact, the signature should be followed by the words “Attorney–in–fact for (name of person).”
If Form LLC-1 is signed by an entity, the person who signs on behalf of the entity should note their name and position/title and the entity name. Example: If a limited liability company (“Smith LLC”) is the organizer, the signature of the person signing on behalf of the Smith LLC should be reflected as Joe Smith, Manager of Smith LLC, Organizer.
If Form LLC-1 is signed by a trust, the trustee should sign as follows:___________, trustee for ___________ trust (including the date of the trust, if applicable). Example: Mary Todd, trustee of the Lincoln Family Trust (U/T 5-1-94).
- Submit the LLC-1 to the California Secretary of State: Mail the completed and signed LLC-1 form to the California Secretary at Secretary of State, Business Entities, P.O. Box 944228,Sacramento, CA 94244-2280. Include a $70 check payable to Secretary of State. If you want a certified copy of the Articles of Organization approved by the SOS, which we recommend you get, make out the check for $75. In lieu of mailing the Articles of Organization, you can hand deliver the AOO and filing fee to the SOS at Secretary of State, 1500 11th Street., 3rd Floor,Sacramento, CA 95814. In addition to the $70 or $75 fee, you must also pay an additional $15 service fee. All fees payable to the SOS are nonrefundable.
No California LLCs for Professional Services
A California limited liability company may not provide “professional services” in California. Corporations Code Section 17701.04. “Professional services” are defined as any type of professional services that may be lawfully rendered pursuant to a license, certification, or registration authorized by the Business and Professions Code, the Chiropractic Act, the Osteopathic Act or the Yacht and Ship Brokers Act. California Code Sections 3401(a) and 13401.3. If your business is required to be licensed, certified or registered, before submitting Form LLC-1 to the California Secretary of State’s office, it is recommended that you contact the appropriate licensing authority in order to determine whether your services are considered professional. For licensing requirements in California, please refer to the CalGold or California Department of Consumer Affairs websites.
How Long Does It Take the California Secretary of State to Review the Articles of Organization?
If you pay the $70 fee to file the Articles of Organization you can expect the SOS to review and approve or reject the AOO in approximately seven days after submitting the AOO to SOS. For current SOS review times see the SOS’s processing time schedule.
3. Prepare and File California Secretary of State Statement of Information Form LLC-12
Every California LLC must file a Statement of Information Form LLC-12 with the California Secretary of State within 90 days after the filing of its original Articles of Organization and pay the $20 filing fee. California Corporations Code Section 17702.09. After filing its first Statement of Information, all California LLCs must also file a Statement of Information every two years during the applicable filing period. The applicable filing period for a limited liability company is the calendar month during which its original Articles of Organization was filed and the immediately preceding five calendar months.
A limited liability company is required to file a Statement of Information even if it is not actively engaged in business at the time the statement is due. Failure to file the Statement of Information by the due date results in the assessment of a $250 penalty. California Corporations Code Section 17713.07(b) and Section 17713.09 ; California Revenue and Taxation Code section 19141. To get a copy of the filed Statement of Information include a separate request and payment for copy fees when the statement is submitted. Copy fees are $1.00 for the first page and $.50 for each additional page. For certified copies, there is an additional $5.00 certification fee, per copy. To get a copy of your filed Statement of Information the following: (1) a cover letter requesting the return of a file stamped copy; (2) a copy of the completed and signed Statement of Information; and (3) a self-addressed stamped envelope.
Mail your Statement of Information with Secretary of State, Statement of Information Unit, P.O. Box 944230, Sacramento, CA 94244-2300 or deliver it in person to the Sacramento office, 1500 11th Street, Sacramento, CA 95814.
4. File FTB Form 3522 & Pay the $800 Annual Minimum Tax
A California LLC that is taxed as a sole proprietorship or a partnership for federal income tax purposes (i.e., it is not taxed as a C corporation or an S corporation) is subject to California’s LLC minimum tax. California Revenue & Taxation Code Section 17941. The California LLC that is not taxed as a corporation must pay to the California Franchise Tax Board (FTB) an annual minimum tax of $800 plus an additional amount if its gross income in a year exceeds $250,000. The additional tax is based on the annual total gross income, not profits. Gross income is income from all sources derived from or attributable to California. California Revenue & Taxation Code Section 17942. An LLC that suffers a loss in any year must still pay this tax based on the LLC’s gross California revenue even if it lost money during the year.
The total LLC fee (FTB calls it a fee, not a tax) will exceed $800 if the LLC’s California income as set forth below:
- If income is more than $250,000, but less than $500,000, the total fee is $900.
- If income is more than $499,999, but less than $999,999, the total fee is $2,500.
- If income is more than $999,999, but less than $4,999,999, the total fee is $6,000.
- If income is more than $4,999,999, the total fee is $11,790.
The tax and additional fee are required to be paid for the taxable year of registration and each taxable year or part thereof until a Certificate of Cancellation is filed with the SOS. A new California LLC must pay its minimum tax not later than the 15th day of the third month after the month of its formation. If you form your LLC in January of 2014, the franchise tax is delinquent after April 15, 2014. California Revenue & Taxation Code Section 17941 and Section 17942. An LLC is not subject to the taxes and fees imposed by Revenue & Taxation Code Section 17941 and Section 17942 if the LLC did not do any business in California during the taxable year and the taxable year was 15 days or less. California Revenue & Taxation Code Section 17946.
An LLC that is taxed as a corporation must pay to the FTB an annual minimum tax of $800, and generally determines its California income under the Corporation Tax Law commencing with California Revenue & Taxation Code Section 23001. For more on California taxation of LLC’s taxed as corporations read FTB Publication 1060, Guide for Corporations Starting Businesses in California.
How to File FTB Form 3522 & Pay the Minimum Tax
Your LLC pays its minimum tax by preparing and filing FTB Form 3522, submitting the Form 3522 to the FTB along with a check payable to the Franchise Tax Board. Write the California SOS file number, federal employer ID number, and “2014 (or the year for which the fee is being paid) FTB 3522” on the check or money order. Detach the payment voucher from the bottom of the Form 3522 page. Enclose, but do not staple, your payment with the voucher and mail the voucher and payment to: Franchise Tax Board, PO BOX 942857, Sacramento, CA 94257-0531.
For further information regarding LLC franchise tax requirements, contact the FTB at one of the following phone numbers:
- (800) 852-5711 from within the United States
- (800) 338-0505 from within the United States (automated service)
- (916) 845-6600 from outside the United States
- (916) 845-6500 from outside the United States (automated service)
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