Forming an LLC in Texas [How-to Guide]
LLCs provide a lot of legal and liability protection in the world of business, and are some of the most common forms of incorporation in the state of California.
Providing a lot of protection, a lot of flexibility, and an air of legitimacy in today's hypercompetitive business environment, the process to form an LLC in California is quite easy to navigate, too.
Below we highlight the important details you need to know about forming an LLC in California today.
We cover things like:
- Choosing the right name for your new California business
- The process for and importance of designating a registered agent
- How to handle the Articles of Organization process
- How to tackle the California Statement of Information process
- What to include in your California Operating Agreement
Finding the Right Name for Your New California LLC
The entire process to form an LLC in California starts with choosing the right name. This, though, is often a lot more challenging than most business owners and entrepreneurs think at first.
For starters, not any and every name is “up for grabs” when you are looking to register an LLC in the state. Some names are going to be off limits, some names are already going to have been taken, and some names are going to violate the rules and laws that California has established.
Here's a quick breakdown of what you'll need to consider when registering a new LLC and choosing the right name to kick things off:
- All California LLC business names have to include the words “Limited Liability Company” or abbreviations for that phrase (like LLC, for example)
- All California LLC business names have to be unique to the state of California, too. If someone else has already registered the name you are looking for you won't be able to use it for yourself
- California LLC business names cannot include words like bank, legal attorney, college or university, or something similar – unless proper licenses have been secured and regulations have been met
There are a whole host of other rules to naming businesses in the state of California. These rules can be found on the Secretary of State website (under the Business Programs Division section). They have a whole section detailing California's code of regulations.
Designating a Registered Agent in the State of California
The next step to form an LLC in California is going through the process to register an agent with the state. This is 100% legally mandated by the state of California (just like every other state in the US).
Agents are legally authorized to receive paperwork and to act on a business' behalf. These agents can receive legal documentation, notices regarding lawsuits, and any official correspondence from the state or federal government.
Registered agents in California must either be a full-time resident of the state or a business/corporation that is able to act as an agent on behalf of other businesses and LLCs. Any member of an LLC (including the business owner and the founder) can be designated an agent, too.
Handling the Articles of Organization Process
The Articles of Organization are a major part of the process to form an LLC in California, too. To register your California LLC, you'll need to file Form LLC-1 - Articles of Organization with the California Secretary of State. There is also an option to fill the LLC-1 form online.
The first piece of the puzzle is to decide whether or not this new LLC is going to be manager managed or member managed, though there are other important details on this form that have to be filled out as well.
At the end of the day, this form is mandatory. Skip this step and your LLC journey ends right here.
Establishing Your California Statement of Information
Every new LLC in the state of California also has to fill out what is called an “Initial Statement of Information”.
This specific form (Form LLC-12) doesn't have to be filled out while you are in the process of forming an LLC in the state. The LLC-12 form can also be filled and submitted online. It does have to be filled out and submitted to the California Secretary of State within 90 days, though.
Again, this form can be filled out online, in person, or mailed directly to the Secretary of State office in Sacramento.
Drawing Up a California Operating Agreement
Operating Agreements are required by law in the state of California (something that's a little bit unique to building an LLC in this state compared to others).
This document establishes exactly how the ownership of a new LLC is structured, as well as how different operating procedures are going to be handled.
California mandates this to avoid a lot of potential messy litigation in the future. The operating rules and ownership structure will be referred to in any disputes in the future, streamlining the process quite a bit.
Applying for a Federal Employer Identification Number
Finally, it's a good idea for anyone looking to form an LLC in California to apply for a free federal Employer Identification Number (EIN) from the IRS.
This nine digit number gives businesses the ability to open up a business bank account, makes it easier to handle federal and California State taxes, and also streamlines the employment part of the company operation, too.
Applying for (and receiving) the EIN is something that has to be facilitated through the IRS website, though.
How Much it Costs to Form an LLC California
The cost of forming an LLC in California can get a little steeper than in other states, but it's not necessarily cost prohibitive.
For example, reserving a unique name for up to 60 days before registering it as a new LLC is much cheaper in California compared to other states – coming in at just $10.
The Statement of Information fee needs to be attached to this form submitted within the first 90 days of registering a new LLC in California. The fee (as of 2021) will cost $20. Statements of Information need to be submitted biannually (every two years) and that same $20 fee has to be sent in every time.
As far as the Articles of Organization fees are concerned, the initial fees are going to be $70.
Franchise Tax Fees need to be paid for all LLCs operating in the state of California. This fee is an annual $800 tax and must be paid out regardless of whether or not a business makes any money that year.
Any California LLC that brings in more than $250,000 in gross revenue will be on the hook for even more fees that are calculated individually.