6 Steps to Create an LLC in California

What is an LLC?

LLC stands for Limited Liability Company. An LLC is a business entity that includes features of a partnership, sole proprietorship and corporation and can ensure that company owners or members are not held personally liable for the debts and liabilities of the entity. It is similar to a sole proprietorship in that it can be owned by one member, which results in a single-member LLC. While a general partnership and/or sole proprietorship may require little to no paperwork they provide no protection from debts or liabilities arising from lawsuits.   An LLC resembles a corporation in the fact that it provides such protections.

Discover the steps to create an LLC below.

Steps to Create an LLC

1. Choose the State(s) you will do business in.

To form an LLC, you must first decide which state or states you will be doing business in. The best option for most business owners will be to form the LLC in the state where you live and run your business. You will also need to register as a foreign LLC in every state where you will have a physical presence (i.e. storefront, office, etc.) to conduct business.

You may also find some benefit by forming your LLC in a state that has business-friendly laws like Delaware or Nevada. You should consult an attorney and tax professional to decide whether this is a good option for your business or not.

2. Name Your LLC

In California, an LLC may be set up to engage in any lawful business activity, “except the banking, insurance or trust company business.” Additionally, using an LLC for a professional, licensed practice, such as for doctors or lawyers, is generally prohibited.

When deciding on a name for your business, its best practice to search for existing business names across the country to make sure your proposed LLC name is available.

Every state creates its own rules for what kinds of names they will allow, but in general you can follow these guidelines:

• Must include one of the following “Limited Liability Company, LLC, or L.L.C.”
• You cannot use words that may confuse your company with a government agency
• If you need to use restricted words like “bank”, “attorney” or “university”; you will need additional paperwork and a licensed individual (doctor, agent or lawyer) to be part of the LLC.

3. Choose a Registered Agent

In most states, you are required to name a registered agent. A registered agent is a person who agrees to receive legal documents such as subpoenas and other official paperwork on behalf of the LLC and handle such documents appropriately.

The registered agent can be any person over the age of 18 that resides in the state of formation or operation.

4. Create an LLC Operating Agreement

The operating agreement is simply a legal document detailing ownership and the operating procedures of the LLC. An operating agreement is not required in all states, however it is good practice to have one to define roles, responsibilities, ownership and avoid future conflict.

The operating agreement is not typically filed with the state but is a document of internal governance.

5. File your new LLC with the State

To form your LLC and register with the state, you must file Articles of Organization with the Secretary of State along with the necessary filing fee.

The Articles of Organization include:

• Name of LLC
• Address of LLC
• Length of its existence
• Name and Address of the registered agent
• The reason why the LLC was formed

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6. Obtain an EIN (Employment Identification Number)

Additionally, an Employment Identification Number (EIN) must be obtained from the IRS. This is a 9-digit number used to identify your entity, similar to a social security number, except it is for the business.

This EIN will allow you to open bank accounts, file taxes, hire employees, and more.

Each state has its own laws and procedures for forming an LLC, so it is always best to consult an Attorney to make sure you form the LLC properly.