How To Form A Limited Liability Company In California

June 10, 2013
One of the most important decisions a person wishing to start a business will face is how to organize the new venture, i.e. whether as a corporation or a limited liability company ("LLC").  If the decision is to form an LLC, there are a number of steps that need to be taken to organize the new company.  To properly form an LLC in California, each of the following steps must be taken.
 
1246726_business_phone_.jpgChoose An Available Name For The LLC
In California, the name of an LLC must end with the words "Limited Liability Company" or the abbreviation "LLC" or "L.L.C." and the words "Limited" and "Company" are allowed to be abbreviated to "Ltd." and "Co."  The LLC's name may not contain the terms "bank," "trust," "trustee," "incorporated," "inc.," "corporation," "corp.," "insurer," "insurance company," or any words indicating that the LLC is in the business of insurance.  Finally, the name cannot be the same as, or deceptively similar to, that of any other California LLC or foreign LLC registered to do business in California.
 
The California Secretary of State maintains a database of current business names that may be checked to see if the name that has been chosen is available.  If a name is available, it can be reserved for up to sixty days by filing a reservation request with the office of the California Secretary of State.

File Articles Organization With The California Secretary Of State
An LLC is formally created when the Articles of Organization, Form LLC-1, are filed with the office of the California Secretary of State.  There is a $70 filing fee for Form LLC-1, which may be filed online at the Secretary of State's website or by mail.
 
The Articles of Organization must include: the name of the LLC, the purpose of the LLC, the duration of the LLC, the organizer's name and address, the name and address of the registered agent, and the whether the LLC will be member or manager managed.

Appoint A Registered Agent
California requires all LLC's to appoint an individual to act as the registered agent for the company.  The agent is an individual or corporation that agrees to accept service of process (service of legal papers) on the LLC's behalf.  If the designated agent is an individual, he or she must reside in California and the address must be recorded in the Articles of Organization. The agent may be affiliated with the LLC.  If the designated agent is a corporation, it must have filed a Certificate to Register as a Corporate Agent that places it on a list of companies that are permitted to act as agents.

Draft An Operating Agreement
Cal. Corp. Code. ยง 17050(a) mandates that all California LLC's have an Operating Agreement.  An Operating Agreement is a document that governs how the LLC will be run.  California law does not require that the Operating Agreement contain any specific provisions, however, it does establish certain default rules if the Operating Agreement does not cover a certain situation.
 
It is important for an LLC to have an Operating Agreement prepared by an experienced business attorney that is tailored to the company's specific needs.  A standard form LLC Operating Agreement is sufficient to comply with the State's registration requirements, but will usually provide little or no guidance as to how the LLC is to operate or as to the rights and obligations of its members.   

File A Statement Of Information With The California Secretary Of State
All California LLC's must file a Statement of Information, Form LLC-12, within 90 days of the filing of the Articles of Organization and every two years thereafter.  The Statement of Information must contain:
  • Name and California Secretary of State file number for the LLC.
  • Name and address of the LLC's registered agent.
  • Street address of the principal executive office and mailing address, if different from that of the principal executive office.
  • Name and business or residence addresses of the LLC's managers and chief executive officer.
  • The type of business that is the LLC's principal business activity.
Comply With Various Tax And Regulatory Obligations
  • Request an Employer Identification Number (EIN) for the LLC from the Internal Revenue Service.  This can be obtained on line through the IRS website.  
  • If the LLC pays more than $100 to its employees in a quarter, it is subject to employment tax and must register for a California employer account number within 15 days of paying the wages.
  • Obtain workers' compensation insurance if the LLC has any employees.
  • Notify both the IRS and the State of California of any newly hired employees to ensure that the employee is eligible to work in the U.S. and the State and to determine income tax withholding information.
As demonstrated, there are a number of steps that need to be followed to properly form and register an LLC in accordance with California law.  As such, it remains advisable to consult with a business attorney before and during the LLC formation process.