So you’re ready to take your business to the next level and form an LLC. California LLCs comes with a host of benefits and by DIYing your business formation you’ll save yourself some extra dollars. You’re probably excited to take this next step, but also nervously wondering how to start an LLC in California.
While it’s fairly easy to form an LLC in California, you do need to be prepared to put time, effort, and money into the process. And then, once your California LLC is formed, you’ll need to learn the ongoing requirements to maintain your LLC.
If it sounds like a lot, don’t worry! We’re walking you through the entire process of forming an LLC, maintaining it, and even how to dissolve a LLC in California, if you ever need to. Here’s everything you need to know about how to start a business in California.
How to Form an LLC in California
These are the main steps that you’ll need to take when starting an LLC in California.
Step 1: Choose a Name for Your LLC
Before you begin, you need to decide on a legal name for your LLC. But, before you get ahead of yourself, there’s something to keep in mind: Your LLC’s name can’t be the same as the name of another California LLC on file with the California Secretary of State’s office.
This means that you’ll need to check the Secretary of State’s online records to see if the name you want to use is available. If not, it’s back to the drawing board, so it’s a good idea to have a list of potential names to start with.
In addition to ensuring no one else has the same name, there are other restrictions on the format of your LLC’s name. We’ve covered all of these details in our article Freelancer’s Guide to Naming an LLC in California.
Step 2: Choose a Registered Agent
A registered agent is an individual or a corporation that serves as your LLC’s legal agent. They’ll be entrusted with accepting court papers and other important documents on your behalf and will play an important role once your business is up and running.
You can also be your own registered agent. So you’ll need to decide if you’ll act as your own registered agent or designate someone else as your registered agent. California law says that you or any other adult who lives in California can serve as a registered agent. Or, you can pay to use a professional registered agent company.
Step 3: Complete and File California Articles of Organization
To actually create an LLC in California, you have to complete and file LLC Articles of Organization with the California Secretary of State.
There’s a standard fill-in-the-blanks form called Form LLC-1 on the Secretary’s website. To complete it you’ll be asked to provide:
- Your LLC’s name and address
- The purpose of your LLC
- Information on how your LLC will be managed
- The name and address of your registered agent
Once it’s all filled out, file the articles online or by postal mail, and pay the $70 filing fee.
Step 4: File California Statement of Information
Within 90 days after filing your Articles of Organization, you’re required to file a California Statement of Information or SOI. This is form California LLC-12, and it needs to be filed with the California Secretary of State. Expect to pay a $20 fee.
Your California Statement of Information filing includes your LLC’s address, registered agent’s name and address, and the names and addresses of your LLC members can be filed online.
Step 5: Write an LLC Operating Agreement
We recommend that you draft and sign an LLC operating agreement. California law doesn’t require that you file your operating agreement with the Secretary of State.
An LLC operating agreement is a legal document establishing how your LLC will be run. Having it in place helps preserve your limited liability because it helps show that your LLC is a separate business entity. Here’s a free LLC operating agreement template to get you started.
Step 6 (Optional): File a Fictitious Business Name Statement
Did you know that you don’t have to operate your California LLC under the legal name listed in your Articles of Organization? You’re also allowed to use a different name, referred to as an assumed name, fictitious name, or “DBA,” which stands for “doing business as.”
In order to do this, you must file a fictitious business name application in the California county where your LLC’s main office is located. And, just like your business’s legal name, you need to make sure that the name you want to use isn’t already taken.
Once you know that the fictitious name you plan on using is up for grabs, you just file the form and pay a fee. To learn more, check your county’s website for details.
Step 7: Obtain Business Licenses
Depending on where your California LLC is located and the kind of work that you do, you might have to obtain a local business license from your city or county. This is also easy to do, so don’t feel frazzled if you have to get a license to operate your business.
To get a business license, fill out the appropriate form and pay the required fee. Your city or county government website should have all of the details you need, so take the time to do your research to cover all your bases.
Step 8: Get an EIN
This 9-digit number is issued by the IRS and used to identify your LLC for tax purposes. Most single-member LLCs are taxed like sole proprietorships, and the IRS doesn’t require those LLCs to have an EIN. Instead, you can use your personal Social Security number when you file your taxes.
Your LLC will need an EIN if:
- You hire employees
- You elect to be taxed like a corporation
- A company that hires you needs one to process payments
- You want to open a business bank account for your EIN and the bank requires on
The good news it that there aren’t any fees associated with obtaining your EIN. And you can do it yourself online at the IRS.gov website, or by completing and filing IRS Form SS-4.
Step 9: Obtain a California Sales Tax Permit
If your California LLC will sell goods to customers in California, you need to collect and pay sales tax. To do that, you have to register with the California Department of Tax and Fee Administration (CDTFA) on their website, or in person at one of their field offices. After you register, you’ll receive a seller’s permit and will be required to collect and pay sales tax in California.
Step 10: Open an LLC Bank Account
Finally, you should open a bank account in your California LLC’s name. Doing so helps preserve your limited liability status and makes your business bookkeeping much easier. Plus, when you open a business bank account, you can also get a credit card in your LLC’s name.
LLC California Cost
So how much does it cost to register an LLC in California? Here’s a breakdown of the fees you’ll pay when you form an LLC in California.
California Secretary of State filing fees
- Articles of Organization: $70
- Statement of Information: $20
Taxes:
- LLC Tax: $800
- If you’re a newly formed LLC in California, your LLC Annual Tax payment is due by the 15th day of the 4th month after your LLC registered with the California Secretary of State. So, if you filed your Articles of Organization on June 19, your annual tax is due on September 15.
Other
- Registered agent fee: $100 – $300 per year
Maintaining your California LLC
Now that you’ve done the hard work of creating an LLC in California, it’s time to familiarize yourself with the ongoing tasks that you’ll have to do to keep your California LLC in good standing.
Pay California LLC Taxes and Fees
California LLCs must pay annual taxes and fees to the state. And they need to file an annual LLC tax return.
If you fail to pay the tax and fees, or pay these late, your LLC pays a penalty. If you don’t pay at all, or you don’t file a tax return, your LLC’s right to do business in California may be suspended by the Franchise Tax Board.
Any contracts your LLC enters into while suspended are voidable at the request of the other party. Translation: a company or person you contracted with can simply call off the contract without suffering any legal repercussions.
No business owner wants any of these things to happen, so be sure to mark your calendar and set aside money in your budget to pay the taxes and fees required of your California LLC.
LLC Taxes in California
California LLCs must pay an annual $800 LLC tax. California LLC taxes are due by April 15th, just like federal taxes, and should be paid to the California Franchise Tax Board. You must pay this tax even if your LLC doesn’t earn any income. Simply send the payment with form FTB 3522, LLC Tax Voucher, by mail or online (check ftb.ca.gov for details).
California LLC Fee
If your LLC earns more than $250,000 in gross income, congratulate yourself on a job well done. Then, realize that you’ll have to pay an LLC fee. Bummer.
The fee that you pay is based on your income and ranges from $900 to $11,790. Yup, when you earn more the cost of an LLC in California adds up quickly.
See the chart below for a breakdown of the California LLC fee.
You must pay this fee in advance by June 15 every year. This means that you need to estimate what your LLC’s gross income for the year will be.
Sounds like a lot of complicated math and guesswork? Just do your best. Then use Form FTB 3536, Estimated Fee for LLCs, to pay your estimated fee. Pay by mail or online (again, you can check ftb.ca.gov for details).
California LLC Tax Return
If your single member LLC is taxed like a sole proprietorship, you don’t need to file a separate federal income tax return for it. But, you do need to file a special California LLC tax return, even if your LLC doesn’t earn any money. California is one of the only states that require an annual tax filing for LLCs.
You’ll need to file Form 568, Limited Liability Company Return of Income, with the Franchise Tax Board and this return is due by April 15 every year. However, you do get an automatic 7-month extension as long as your LLC is in good standing. This means that you can wait until November 15 to file the return if you need the extra time.
The Franchise Tax Board uses this tax return to confirm that you’ve paid your California LLC fee and taxes for the year. So be sure to list your LLC’s income and the LLC fee and taxes you previously paid. If you owe another fee, you’ll pay that separately.
You can file the return by mail or electronically. If you need more help, there’s a detailed explanation of how to fill out Form 568 in the Franchise Tax Board’s publication, Limited Liability Company Tax Booklet.
Pay California Sales and Use Taxes
Remember how you registered for your seller’s permit? Well, part of having a seller’s permit means paying sales tax and filing California sales tax returns.
To pay your sales tax, register online at the CDTFA website, or do so in person at a CDTFA field office. Then, periodically submit sales tax returns with your sales tax collections to the CDTFA.
Depending on how much sales tax you collect, you may be required to file sales tax returns monthly, quarterly, or annually. Keep in mind that you must complete your sales tax returns online. If you need help completing your sales tax return, you can read over the California sales tax return instructions.
Keep Your California LLC Statement of Information Up-to-Date
Also known as the SOI, the California Statement of Information, Form LLC-12, is filed with the Secretary of State.
This provides a publicly accessible listing of your California LLC’s address and your registered agent’s name and address, along with all members’ names and addresses.
You’re required to file your first California Statement of Information within 90 days after you file your Articles of Organization. Then, every two years you’re required to file a new Statement of Information. California requires that you file this whether or not any changes have occurred.
If the information in your California Statement of Information changes prior to the 2-year filing deadline, you need to file a new Statement of Information. You won’t incur a fee for an updated filing.
Here’s a good way to remember to file your California Statement of Information on time: If your LLC was registered in an even-numbered year, you’ll submit a new one every even-numbered year. If you registered in an odd-numbered year, it’ll be due every odd-numbered year.
The California Statement of Information filing has a 6-month window: This means that you can file the same month you originally registered the LLC, or the 5 months before that month. For example, if your LLC was registered on July 15, 2020, submit your SOI every even-numbered year between March and the end of July.
You can file your California Statement of Information online. Expect to pay a $20 filing fee. And remember that failing to file a Statement of Information can result in a $250 fee.
Amend Your LLC’s Articles of Organization
Typically, the original LLC Articles of Organization for your business will contain basic information that stays the same for a long time.
However, there might be instances when you need to make a major change that alters significant information in your documents. In that case, you’ll have to file amended Articles with the California Secretary of State.
When should you amend your Articles of Organization?
- If you change your California LLC’s formal name
- If you change whether your LLC is managed by members or managers
- If you make other significant changes
When you do need to amend use Form LLC-2 and pay a $30 fee. Unfortunately, you can’t file online.
Note: You don’t need to amend your Articles of Organization if you change your LLC’s address, the names or addresses of the LLC’s managers, or the name or address of the LLC’s agent for service of process. To change that information, you instead file a California Statement of Information.
Renew Business Licenses
Next is periodically renewing any business licenses that you need to operate. These licenses often have to be renewed annually and have a renewal fee. But, to be sure, check your city or county government website to see what the renewal requirements are.
Renew Fictitious Business Statement Every 5 Years
Another form that you need to renew is your fictitious business statement. This form lets you do business under a name other than the one listed in your LLC’s Articles of Organization. You must renew this statement every five years and you expect to pay a renewal fee.
Maintain required documentation
According to California’s LLC law, you’re required to keep certain documents at your LLC’s principal place of business—a.k.a. your main (or only) office.
Those documents include:
- A copy of the LLC Articles of Organization, along with all amendments.
- A copy of your LLC’s Operating Agreement, along with any amendments.
- An alphabetical list of the full name and last known home address of each member of the LLC, along with each member’s contribution and their share in profits and losses.
- If the LLC is a manager-managed LLC, a current list of the full name and business or residence address of each manager (this is unlikely to apply to a single member LLC).
- If the LLC owns any real estate, a copy of business records relevant to the amount, cost, and value of the property.
- If you obtained an employer identification number (EIN) for your LLC from the IRS using IRS Form SS-4, a copy of the completed form must be kept for 5 years.
- A copy of the LLC’s financial statements must be kept for the past 6 years.
- A copy of the LLC’s federal, state, and local income tax returns and reports must be kept for 6 years. f
- The LLC’s minutes, or written consents, as they relate to the internal affairs of the LLC, must be kept for the past 4 years.
How to Dissolve an LLC in California
Sometimes, a business just doesn’t work out. Or you simply decide to do something else. It happens, and there’s no shame in saying you’re shutting down your California LLC.
Even if you’re not planning to shut down your business, it’s still helpful to know how to dissolve a California LLC. Unfortunately, you can’t just walk away from your business. Instead, you need to take steps to legally end it, and to let the world know about it.
Here’s what you need to do to dissolve an LLC in California.
1. Agree to Dissolve the California LLC
If you’re the owner of a single member LLC in California, there’s no need for a formal member vote on dissolution. But if there are two or more members, they need to vote to dissolve the LLC.
All you have to do is follow the voting procedures in your operating agreement. At least 50% of the members need to agree to dissolve the LLC in order to move forward, unless your operating agreement states otherwise.
Next, record your decision to dissolve the California LLC in a resolution signed by the LLC member(s). You don’t need to file this document; just keep it with your LLC’s records.
Here is a sample resolution for a California LLC Dissolution:
Action by Unanimous Written Consent of
the Member(s) of
____________________[name of LLC]
The undersigned, constituting all the members of ________________[name of LLC] (“Company”) a California limited liability company, do hereby consent in writing to the following actions by the Company in lieu of a meeting.
RESOLVED, that the Company be dissolved and its business affairs wound up in accordance with the provisions of the California Revised Uniform Limited Liability Company Act, effective as of the date set forth in the Company’s Certificate of Cancellation.
RESOLVED, that the member(s) of this Company is/are authorized and directed to take such action and to make, execute, deliver, and file on the Company’s behalf, any and all documents necessary to wind up and dissolve the Company.
Approved as of __________[date]
MEMBER(S)
Signature:_________________________
Print Name:_______________________
Signature:_________________________
Print Name:_______________________
2. Send Notice to Creditors
You must provide notice of your dissolution to all known creditors and claimants when you close an LLC. California law requires this.
This could include:
- Suppliers that provide you with inventory and materials
- Banks
- Lenders
- Service providers
- Your landlord
- Utility companies
In California, creditors generally have four years after the date of your California LLC dissolution to file claims against an LLC. If all of the LLC’s money is gone, they can collect from money or assets distributed by the LLC to its members.
There’s no official notice form, so here’s a sample that you can use. California’s LLC law doesn’t require that you send this notice by certified mail.
Notice to Creditors and Claimants
To: __________________________________[name and address of creditor or claimant]
Please be advised that ____________________[name of LLC] (“Company”), a limited liability company organized under the laws of the State of California, will be dissolved by action of its member(s) and the winding up of its affairs has commenced.
All debts owed by the Company, and all other claims against it, will be received in writing to the Company at the following address:
__________________________________
__________________________________
DATE: ______________
[Name of LLC]
By:___________________
Its: ___________________
3. Wind Up Your California LLC’s Business
You need to wind up your LLC’s business and terminate any ongoing legal filings. These steps are a crucial part of how to dissolve an LLC in California.
Discontinue Registered Agent for Service of Process Services
If you use an outside registered agent, let them know you’re terminating the California LLC. Otherwise, you’ll continue to get charged for the service.
Cancel Local Business License
If your LLC has a business license with your city or county, you need to let them know that your LLC is dissolving. Otherwise, they may continue billing your business for annual license fees.
The procedures for doing this vary from county to county and city to city, so be sure to check your county or city website for details.
Abandon Fictitious Business Name
The next step when you dissolve an LLC in California is to unregister your fictitious name. To do so, just file a statement of abandonment form with your county clerk’s office.
You might also be required to publish the abandonment in a local newspaper, so check your county’s website for details.
Close Out Seller’s Permit
If your LLC has a seller’s permit, you need to close out your account with the California Department of Tax and Fee Administration (CDTFA). To do so, file form CDTFA-65, Notice of Closeout.
And you also need to file your final sales tax return and any prior returns (including prepayments) that you have not yet filed. CDTFA publication 74, Closing Out Your Account contains helpful information about closing out your permit.
Withdraw from Other States
If your LLC was qualified to do business in one or more states other than California, you should notify those states of your California LLC dissolution.
To do so, file a certificate of withdrawal or similar document with the Secretary of State of each state involved. You’re usually required to pay a fee to file the document, so be ready. Upon the effective date of the withdrawal, your California LLC will no longer be legally authorized to transact business in that state.
Filings for Employees and Independent Contractors
If your LLC has, or had employees, you must file final employment tax returns and make any tax deposits that are due. Filings are required both with the IRS and with the California Employment Development Department.
For your federal payroll taxes, you must:
- Make any final federal tax deposits that are due
- File final quarterly or annual employment tax forms (Form 940 or Form 941)
- Issue final wage and withholding information to employees (Form W-2, Wage and Tax Statement)
- Report W-2 information to the IRS (Form W-3, Transmittal of Income and Tax Statements)
- If applicable, file a final employee pension/benefit plan return (Form 5500, Annual Return/Report of Employee Benefit Plan)
To submit your California payroll taxes:
File a Payroll Tax Deposit and Quarterly Contribution Return and Report of Wages, along with payment to the California Employment Development Department (EDD) within 10 days of closing your business.
If your LLC paid independent contractors (nonemployees) $600 or more during the last year:
You must file IRS Form 1099-MISC, reporting the payments. Form 1099-MISC is due by January 31 to report payments for the prior year. You can use tax preparation software to create Form-1099s, but if you use a payroll tax service, they might handle these filings for you.
Collect Outstanding Accounts Receivable and Pay Off Debts
If anybody owes your California LLC money, be sure to collect it. It’s best to do so before you notify customers or clients that you’re going out of business.
You must pay, or make adequate provision to pay, all known LLC debts and liabilities. This includes money owed to your landlord, bank, suppliers, utilities, and service providers.
Distribute the LLC’s Assets to Its Member(s)
Any money that’s left after you pay off all of the LLC’s debts should be distributed to its members. If there’s only one member, this is a very simple process—all of the money goes to him or her.
If there are multiple members, this can be more complicated. Unless your operating agreement says otherwise, you must pay the members in the following order:
- Members should be paid any distributions they’re owed, and you need to repay any loans they made to the California LLC.
- Members should be refunded for their initial contributions.
- Any remaining money is distributed to the members according to the percentage of their ownership.
Close LLC Bank Accounts and Credit Cards
Close all of your California LLC’s bank accounts after you’re done using them. Banks may want to see a copy of your member resolution approving your LLC’s dissolution. Cancel any credit cards in your LLC’s name.
Cancel Insurance and Leases
If your California LLC has insurance coverage in its name, such as liability insurance, workers’ compensation insurance, or renter’s insurance, be sure to cancel these policies or transfer them to your name. If you have an office lease, cancel it or transfer it to your own name. The same goes for any leases of business equipment.
Transfer Intellectual Property
Does your LLC own any intellectual property in its name (for example, trademarks, domain names, software, writings, videos, or other audiovisual works)? If so, ownership should be transferred to the member(s).
Inform Clients and/or Customers
Inform clients and/or customers that you plan to dissolve your LLC in California,
4. File Notice of Cancellation
Once your LLC’s affairs have been wound up, it’s time to legally terminate its existence. You do this by filing a termination document with the California Secretary of State.
If all the LLC members vote to dissolve, as is usually the case, you can file a Certificate of Cancellation (Form LLC-4/7). You simply fill out the form online and then print it out. Just make sure to use Form LLC-4/7, not the short form LLC-4/8, as the latter is only for LLCs that haven’t conducted any business.
If less than half of your members voted to dissolve your California LLC, then you may need to file a Certificate of Dissolution. California’s Secretary of State provides more guidance about which form you should file here.
Form LLC-4/7 is simple:
- Provide your LLC’s name
- Provide the 12-digit Secretary of State file number (this number is above the file stamp on your Articles of Organization)
- Check the box in Item 3 that the vote to dissolve was made by all members
- Add your signature (this must be a personal signature on the printed form, not computer-generated)
Unfortunately, you can’t file the forms online. You must file by postal mail or hand-deliver the paperwork to the Secretary of State’s office. If you file by mail, there is no filing fee. If you hand-deliver the forms, there’s a $15 counter drop-off fee.
To get a copy of the filed document, you must pay $1 for the first page and 50 cents for each additional page. And you must include payment when the certification is submitted.
Before you file your certificate of cancellation, make sure your California LLC’s status is listed as active on the Secretary of State’s records.
If it’s inactive, the Secretary won’t file the Certificate of Cancellation. Your LLC’s status can be checked online on the Secretary of State’s Business Search here.
When the Secretary of State files your certificate of cancellation, your LLC will be canceled and its powers, rights, and privileges will cease in California. Moreover, your LLC’s name will become available for use by others.
However, your LLC may continue solely for the purpose of winding up its business affairs, bringing or defending LLC-related lawsuits, collecting or paying debts, disposing of its property, and dividing its assets.
5. File Final Tax Returns
You need to file the final tax returns for your LLC. To do so, simply file your normal LLC tax return and check the box showing that it’s the final return for the LLC.
You’ll need to pay any California LLC taxes that are due. This includes payment of the $800 annual California franchise tax for the tax year of the final return.
If you’ve elected to have your LLC taxed as an S Corp:
You should file IRS Form 1120S and checkbox H(1). You should also file the California S Corp tax form, Form 100S, with the California Franchise Tax Board, and check box A.1.
If your S Corp is not taxed as a corporation:
File Form 568 and checkbox J.2. Also, write “final” on the top of the first page of your California return.
Be sure to file these final tax returns!
If they aren’t filed, your California LLC will remain active as far as the Franchise Tax Board is concerned. This means your business will continue to be subject to the $800 minimum annual franchise tax. And that’s that last step to how to close an LLC in California.
Now you have all the tools to start your very own California LLC. From how to set up an LLC in California and staying on top of California LLC taxes to even knowing how to close an LLC in California, you’re armed with the knowledge you need to start, and maintain, the business of your dreams.
Stephen has dedicated his career as an attorney and author to writing useful, authoritative and recognized guides on taxes and business law for small businesses, entrepreneurs, independent contractors, and freelancers. He is the author of over 20 books and hundreds of articles and has been quoted in The New York Times, Wall Street Journal, Chicago Tribune, and many other publications. Among his books are Deduct It! Lower Your Small Business Taxes, Working with Independent Contractors, and Working for Yourself: Law and Taxes for Independent Contractors, Freelancers & Consultants.