If you are thinking about starting your own business, you may consider yourself an expert in your field. Perhaps you have years, or even decades of experience in your industry, and you are planning on employing that knowledge to launch your own enterprise. While your understanding of your market will prove critical to the success of your business, you are also going to have to come to know the in’s and out’s of operating a business. Right from the outset, understanding what goes into forming an LLC can be helpful knowledge to have on your side.
Forming an LLC in California is a common practice for business owners. With its tax and liability incentives, a limited liability company presents an ideal structure for many different types of organizations, both big and small. If you are planning to build a business in California, read on for a quick primer on how to form an LLC.
Why Forming an LLC is a Smart Decision
Owning your own business comes with high degrees of responsibility and risk. Beyond the burdens of daily decision-making, there are larger, and trickier problems that can present themselves. Debts can amass quickly, and sometimes bankruptcy is inevitable. Lawsuits also happen, whether their grounds are just or not. With this in mind, the concept of “limited liability” can quickly become appealing to business owners.
In a limited liability company, members of the LLC are shielded from liabilities generated by the business. In other words, if your business is sued or goes bankrupt, you will not find yourself in financial ruins as a result. Your personal assets are protected from the liabilities of your business, which is a separate entity.
There are also tax implications to consider for your organization. LLCs are considered to be “pass-through” entities by the Internal Revenue Service (IRS). What this means is that you will only pay taxes on your salary, and not also on the profits of your business (which “pass-through” to the members of the LLC).
It All Starts with a Name
If you are interested in starting an LLC, the first thing you will want to do is decide on a name for your business. The state of California requires that each registered LLC feature a unique name that is not demonstrably similar to any other businesses. If you have some ideas in mind, you can check with the California Secretary of State’s business database to see what is available. You can also reserve a name for up to 60 days ahead of submitting your articles of organization.
Filing Your Articles of Organization and Selecting a Registered Agent
With a business plan in-place, along with a unique name and brand, it is time to file your articles of organization with the Secretary of State’s office. This is compulsory for registering your LLC in California. This can be done by completing a “Form LLC-1.” This document will call for some pertinent information related to your business, including:
- The name and location of your business
- Your organization’s purpose
- How your business will be managed
You will also be tasked with selecting a registered agent. Officially known as an “agent for service of process,” this individual will be responsible for receiving legal correspondence on behalf of your business. While this is a smart business practice, it is also a requirement in the state of California.
Choosing a Management Structure and Handling Tax Obligations
Unlike corporations and certain partnerships, limited liability companies have some flexibility in how they can be managed. You can opt to have the members of the LLC itself handle management duties, or you can appoint outside parties to the role. Whatever you decide on, be sure to note it on your articles of organization.
Though not required by California state law, you may also wish to draft an operating agreement. This is a sound maneuver from a legal perspective, and it can help clarify your business’s policies and daily operation guidelines.
You are also going to want to make sure that your business is appropriately registered with the IRS. If you have more than one employee, you will need an Employer Identification Number (EIN) for tax purposes. You should also make sure that you are registered with the California Franchise Tax Board (FTB).
Preparing Your LLC Documents Online
If you have done the necessary research and decided that an LLC is the right structure for your business, you have a couple of options for moving forward. You can source a Form LLC-1 from the Secretary of State, complete it manually, and return to the appropriate office via mail. Or, you can complete that process online in just a matter of minutes with our help.
At the Corporation Center, we feature a host of web forms for your California business documentation needs. To learn more about how we can help you, take a moment to browse our website, or contact us today.