For generations, American entrepreneurs have been drawn westward. California has been particularly hospitable to innovators in the business world, and to this day it remains an economic force in the United States and beyond. From the tech behemoths in Silicon Valley, to the bright lights of the entertainment industry in Hollywood, the Golden State is home to a diverse array of businesses in all shapes and sizes. If you are considering starting your own business on the west coast, you are going to want to understand what goes into forming an LLC in California.
Whether or not forming an LLC is right for you will depend on your individual circumstances. As a part of your overall business plan, you will want to consider what your eventual and short-term goals may be. While knowing your market and hiring an effective team are crucial to your success, so too is creating a sound structure for your enterprise.
Understanding the Basics of a Limited Liability Company
Many businesses have humble beginnings. Steve Jobs started Apple from his own garage. At one point, Amazon was a one-man operation helmed by Jeff Bezos alone. As businesses grow and evolve, however, adjustments need to be made. You want to make sure that your business is smartly positioned with regards to taxes and potential legal liabilities. With this in mind, many business owners opt to form limited liability companies.
An LLC designates your business as a legal entity. Doing this provides you with what is called “limited liability.” In short, that means that if your business goes into bankruptcy or you are faced with costly lawsuits, you can protect your personal assets. Because of their inherent liability protections, LLCs are incredibly popular–and for good reason. An LLC can have one or several owners, and they are subject to certain reporting requirements.
The Internal Revenue Service (IRS) treats LLCs as what they call “pass-through” entities. The income generated by the business itself is not taxable. Instead, that money “passes through” to the members of the LLC who then pay income taxes on their earnings. This tax benefit contributes significantly to the overall appeal of LLCs, and separates them from corporations, which can find themselves taxed twice, so to speak.
Forming an LLC in California: Where to Begin?
If you have done the proper due diligence and decided that an LLC makes sense for your business aspirations, you may be curious about where to begin. At the outset, you are going to want to select a unique name. While each state has its own rules, California requires that all registered LLCs have wholly individual names. To see if your desired business moniker is available, you can search the California Secretary of State’s business database.
With a name in-place, it is time to take care of some paperwork. You are going to want to file articles of organization, also called a “Form LLC-1” with the Secretary of State. This form should include the name and physical location of your business, information about how it will be managed, the name and contact information of your registered agent, as well as a statement of purpose for your organization. Once completed, you can return your form LLC-1 to the appropriate state office for processing.
Designating a Registered Agent
When you create an LLC in California, you are required to specify a registered agent. The role of this individual is to receive service of process documents for legal matters. Having one individual tasked with this responsibility not only satisfies a state requirement, it is also a sound business practice. By having one person specifically assigned this job, it is one less thing to have on your plate as a business owner.
Creating a Management Structure and Operating Agreement
While it is not required by the California Secretary of State’s office, it is still a good business practice to have an operating agreement in-place. This can help you better manage your company on a day-to-day basis by clearly outlining certain policies.
How you manage your company is also an important aspect to consider. An LLC can either be managed by its members, or you can appoint outside management. The route you go will depend on your comfort level with managing your operation as an owner. Regardless of what you choose, you will want to specify your management structure when you go to register your LLC with the state.
Submit Your LLC Registration Forms Online
If you have decided that you would like to form an LLC, why not work with us at the Corporation Center? We are a private service that specializes in helping business owners submit their official documentation online. With our easy-to-fill web forms and encrypted web portal, we make processing your business forms a breeze. To learn more, contact us today.