How to open your LLC in California?

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Opening an LLC in California is a great option for those foreigners who wish to establish their LLC in the United States, in a state that offers a solid economy, a broad market and business opportunities, as well as a strategic location on the west coast.

If you are considering the option of opening your LLC in California, but you are still not sure if it is the best option for you, or if you have doubts about the steps to follow to establish it, don't worry. In this comprehensive guide, we will provide detailed step-by-step information on everything you need to know before creating your LLC in the state of California. Let's get started!

Why open an LLC in California?

There are several reasons why opening an LLC in California may be a great option for you:

Limited Liability Protection

Limited or personal liability protects the owner from being held responsible for the financial debts of an LLC. This separation between an individual and an LLC is undoubtedly the best reason for an LLC to exist.

 This provides the same level of separation as a corporation, without the same level of complexity when it comes to forming or managing the business. In the event of a lawsuit, the LLC is considered separate from the individual who owns it.

Tax benefits and flexibility

When it comes to taxation, LLCs in California get the best of both worlds. LLCs do not have their own federal tax classification, but are instead automatically classified by the IRS as sole proprietorships in the case of a sole proprietorships, or partnerships if there is more than 1 member. They can then adopt the tax status of S corporations or C corporations.

This way, unless you choose to be taxed as a C-Corp, an LLC benefits from being a pass-through entity. Instead of paying corporate taxes, income and expenses are passed directly to the owners' tax returns.

Flexibility in business management

Through an “Operating Agreement”, LLC members can define how they want to operate with total flexibility. In this agreement, they will be able to define the percentages of ownership of each partner, the remuneration, how to transfer ownership, and establish the rules of the game according to how they need or like to operate. 

Simplicity of opening and management

In California, LLCs can be formed easily compared to corporations. The process is online and is relatively easy to do. Next, maintaining an LLC in California is simple. You do not have to hold the same annual corporate meetings, appoint a board of directors or executive officers, create company bylaws, or record company minutes and resolutions as corporations. The only thing you have to do is file a tax return with the IRS, pay a franchise tax, and renew a registered agent.

Who can open an LLC in California?

LLCs in the state of California can be opened by anyone in the world, regardless of nationality or residence, who is over 18 years of age and has a valid passport. 

How to open an LLC in California?

Now that you know that California is the state you prefer when open your LLC in the United States and that you meet the requirements to open it, let's see the stages that must be followed to have an active LLC in California.

1. Choose the name of your LLC

Defining the name of your LLC will be the first stage to follow before you can move forward with its registration. Names must meet California naming requirements. Below are the most important requirements to keep in mind:

• Your business name must include the words Limited Liability Company, LLC, or L.L.C.
• Your name must be unique. Cannot be registered by another company in California. If you already have a business name idea and want to evaluate its availability in California, you can do so in this LLC name validator. 
• The company name cannot contain words used to name a government agency (i.e. Department of State, CIA, FBI, Treasury, etc.)
• Certain words are restricted (bank, lawyer, credit union, etc.) and may require additional documentation and licensing procedures to be used.

2. Choose the registered agent

It doesn't matter if you decide to register your LLC in Delaware, open it in Florida, create it in Wyoming or in California, Every LLC must have a registered agent. A registered agent is basically a person designated to receive official documents on behalf of the LLC.  This is the person or entity that will receive legal documents, government correspondence, tax forms, as well as notices of lawsuits on behalf of the LLC.

When you form your LLC, your registered agent must provide a statement to the Secretary of State confirming that you accept the position.

A registered agent can be a person (including yourself or an employee of your LLC) or an entity that offers registered agent services. They must meet the following criteria:

• Entities (or companies) must offer registered agent services.
• Agent must have a California address.
• The agent must be present and available to accept documents during regular business hours.

We recommend using with these recommended companies, which are responsible for registering your LLC and providing you with registered agent services, with annual renewal

3. Submit the "Articles of Organization" form

The Articles of Organization are a document that officially establishes your LLC by providing basic information about it. In California, Articles of Organization can be filed using Form LLC-1.

To properly register your LLC in California, you must prepare the Articles of Organization and file them with the California Secretary of State. Although it sounds like a complicated task, it simply involves completing a relatively simple online form and submitting it. You can also send it by mail.

To prepare your articles, you will generally need the following information:

• The name and address of your LLC.
• The purpose of the LLC.
• The name and address of your registered agent.
• Management structure: Will members or managers manage the LLC?
• The person who forms the LLC must sign the Articles.

Once you file your Articles, the secretary of state will review the filing. If the articles are approved, the LLC becomes a legal business entity. In California, you can file by regular mail, online, or in person.

Please note that the normal filing fee for an LLC in California is $70.

5. Write your operating agreement

An operating agreement is basically an agreement on the functioning and operations of the LLC between the members. This document lists the details of the financial, legal and management rights of all members of the LLC: dividend distribution, abandonment clauses, non-competition, capital contributions...

California requires that an LLC have an operating agreement, but it is not necessary to file it with the authorities. However, it must be easily accessible. A written operating agreement is useful for several reasons, including resolving disputes that may arise in connection with financial agreements and other potential litigation. Without an agreement in place, courts will make decisions based on state law, not necessarily what is best for the LLC and its members.

What you include in your operating agreement depends on you, your partners, and the specific needs of your business. Here we have a free template, which will give you a good basis on which to write your Operating Agreement. . 

6. Submit a declaration of information.

All California LLCs are required to file an Information Statement, Form LLC-12, with the California Secretary of State within 90 days of the LLC being formed. After that, An Information Declaration must be submitted every two years (biannual). The filing period is the calendar month in which the original articles of organization were filed and the five preceding calendar months. You can file the return online or print it and mail it or deliver it in person to the California Secretary of State. The filing fee is $20.

A Statement of Information includes the following information:

• Name of the LLC and California Secretary of State file number
• Name and address of the agent of the LLC
• Address of the principal executive office of the LLC
• Mailing address of the LLC
• Name and complete business or residential address of any manager or chief executive officer, or if no manager is elected, the name and business or residential address of each member.
• Email address of the LLC (if the LLC chooses to receive renewals by email instead of regular mail)
• Primary business activity of the LLC.

6. Get an EIN

The last important step is obtain an Enterprise Identification Number (EIN) from the IRS to pay taxes, apply for business resources, and be able to open a business bank account, among other things. Single-member LLCs that do not have employees nor wish to have them are the exception. 

EINs are free and available on the IRS website. 

Delegate the creation of your LLC in California and avoid all these complex processes

What to do after registering my LLC in California?

Registering your LLC is just the beginning. Once you have carried out all the previous steps, there are some points that we recommend that you take into consideration. 

Open a bank account dedicated to your California LLC

Having personal assets separated from company assets is essential to benefit from the protection of the corporate veil offered by LLCs in California. 

For this, it is essential that you open a business bank account, 100% dedicated to the activities of your California LLC. 

In addition, by having an exclusive bank account for your business, you will be able to take advantage of other additional benefits such as simple and centralized accounting, which will save you a lot of time when filing taxes or tax reports.

The recommended banks for your business account as a foreigner from the USA are Mercury, Relay, Revolut, AirWallex, Wise, Bank of America, Chase. 

• See the best business bank accounts in the USA for foreigners

Plan the taxation of your California LLC

• To do business in California, an LLC must pay an $800 franchise tax fee. This fee must be paid regardless of whether the business generates income and must be paid each year.
• If your LLC's annual gross receipts exceed $250,000, an additional annual fee is also required.
• If you sell physical products or certain types of services, you may need to collect sales tax and then pay it to the CDTFA. Sales tax is collected at the point of purchase and is made up of three rates: state tax, local tax, and any district tax that may be in effect. We strongly recommend that you check with your accountant and the CDTFA to confirm if your business is required to collect sales tax in California and make sure you pay the correct amount.

• If you plan to have employees in the USA, there are also employer taxes (Unemployment Insurance Tax, Employee Withholding Tax). 

Meet your annual obligations

Your LLC will have obligations to comply with every year, such as the renewal of the Registered Agent. 

As we said before, if your LLC does not have a registered agent, it can be dissolved within 30 days by the State of California. 

Then, there is the annual bi-report to the Secretary of State of California that we mentioned in the previous stage. 

Además, no olvides pagar la franchise tax antes del día 15 del cuarto mes después del cierre del año fiscal de la LLC (15 de abril para la mayoría de las LLC).

¡Tu agente registrado se encargará de notificarte de estas fechas!

Apply for Licenses

Depending on the type of business your LLC is involved in and your location, you may need to obtain other state and local business licenses. For more information, please visit the following site of the state of California

Do you still have questions about registering an LLC in California?

What is an LLC?​

An LLC or limited liability company is a form of business organization in which the company is considered legally separate from its owners. 

 This means that the owners of the LLC are legally protected from the company's liabilities. Additionally, the LLC offers a transparent tax structure, meaning that taxes are not paid by the company itself, but by the owners as individuals. In the event that there are no owners of the LLC with US nationality, taxes will not have to be paid in the United States.

How much does it cost to open an LLC in California?​

The California Secretary of State charges a $70 filing fee for articles of organization. This fee has been temporarily waived for LLC filings made between July 1, 2022 and June 30, 2023.

The California Secretary of State also requires the filing of a bi-annual report on behalf of each registered LLC. The information report (bi-annual report) must be submitted 90 days after the formation of the LLC and every two years thereafter. The filing fee is $20.

You should also consider the service of a registered agent can cost between $50 and $150 annually. California also charges other taxes and fees, such as a minimum annual franchise tax of $800 and additional fees for high-income LLCs.

What is the annual Franchise Tax?

The Annual California Franchise Tax is a payment required by the California Franchise Tax Board to be made by LLCs doing business or formed in the state. It is an annual tax of $800 that must be paid even if the LLC is not conducting business.

How is an LLC tax treated in California?

In California, an LLC can elect to be treated as a corporation or as a past-tax entity. This can have tax and accounting implications, so it is important to consult with a professional before making a decision.

How many members can an LLC have in California?​

An LLC in California can have one or more members. There is no maximum limit set on the number of members allowed. Details regarding the number and characteristics of members are set forth in the formation documents and the Operating Agreement of the LLC. 

Do California LLCs have periodic filing requirements?

Correct. You will need to file a “California Information Return” report for your LLC. The initial report must be filed within 90 days of forming your LLC and every two years thereafter. You can file this report online with the Secretary of State.

How do I dissolve an LLC in California?

If you wish to dissolve your business, you must complete and submit a “Certificate of Cancellation” or a “Certificate of Dissolution”. These forms are available on the Secretary of State's website.