LLC is a business structure that has many advantages, and these are related to limited liability and tax benefits.
But when we talk about starting a limited liability company in California, we have to take into account such aspects as state laws and requirements, which can be beneficial to startups or, conversely, negatively affect the business atmosphere in the state.
Advantages and Disadvantages
When deciding to create an LLC in California, you can rest assured that the process is fairly simple and won’t cost much. Still, there are some things you should know ahead of time.
- Safety. The owner is not personally liable for the company’s debts/losses. Therefore, your personal home, bank account, or car are not at risk as all personal assets are protected. Still, this protection can suffer if the owner does not maintain the corporate veil. To do so, it is important to:
- Have sufficient funds to cover liabilities;
- Separate funds by opening a corporate bank account;
- Sign all business transactions only on behalf of the company;
- Record all decisions made at meetings in the official documents;
- Control the relevance of documentation.
- The right to choose taxation options. Those companies that bring in $10,000 or more a year have the right to choose how they pay income taxes;
- Confidence is higher. For certain reasons, LLCs are recognized on the market as a more formal business structure, which greatly increases trust from customers and partners;
- Flexible management rules. A company can be managed by one member or several people. Moreover, if there are several members, managers can be involved in the running of the business.
There are several reasons why a limited liability company may not fit you, namely:
- Do you treat something that brings in money as a hobby? If so, we recommend thinking about sole-proprietorship;
- What is your profit per year? If the figures are too large, then a corporation would be more appropriate for you.
There are certain steps you should take when you open an LLC, and you have to match all these steps with state requirements and laws. If you miss any point or make a mistake, you will lose not only the benefits of the LLC structure but also the ability to register your business legally.
Considering that such situations arise quite often, especially for startuppers, it will be more convenient and easier to turn to a third-party service that will independently gather information for filing the Articles of Organization and send the documents to the Secretary of State.
Moreover, with such services, you will not have to worry about compliance with rules and regulations, a registered agent, etc. – you will get all this and more from one provider.
How to Start an LLC
The formation of a business can be divided into two stages: gathering information and filing the Articles of Organization.
- Name reservation. The company name has to be unique and comply with generally accepted rules in the United States. Thus, you have to add the LLC abbreviation or its variation at the end of the name. There are also several unacceptable words and phrases, and certain words can only be used in the name after obtaining a license;
- LLC registered agent California. Under CA law, every business must hire a registered agent to handle the legal and official paperwork. Actually, the owner can personally act as their own agent, but as practice shows, this is not entirely convenient. Instead, you can hire a special company and have more time to deal with your own business. Thus, a third-party resident agent is a reasonable delegation of duties.
Filing of the Articles of Organization
For your LLC to receive legal status, you should file certain forms (downloadable from the special platform) with the Secretary of State online, by mail, or in person at their office. The procedure will cost you $70.
This document should contain the name of your future company, a resident agent’s contact information, the purpose of your business, as well as other important information.
Note! It’s best to familiarize yourself in advance with the paperwork that needs to be filled out, especially if you plan to file the Articles of Organization on your own.
Once the document has been reviewed by the Secretary of State, and it can take up to 5 business days, their decision will arrive at the address you specified in the Articles of Organization. Do you want a quicker response from the Secretary? Then use the expedited service.
In addition, under California law, once the Articles are filed (no later than in 90 days), it is mandatory to file a biennial report with the Secretary of State, which is then filed every 2 years.
Congratulations! Your LLC has officially been registered. But the work doesn’t end there, because you still should solidify your company’s existence.
For example, draw up an Operating Agreement to fix all the rules of the company in one document and protect yourself in the future. It is also important to take care of an EIN and a bank account, obtain the necessary licenses, and make sure that the documentation is in order. This is how you can succeed. We wish you the best of luck!