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What is a California LLC?
A California LLC is a type of business structure created by state law. Think of an LLC as a “hybrid business structure”. It has the personal liability protection of a Corporation and the pass-through taxation of a Sole Proprietorship.
As a separate “legal person” in the eyes of the law, a California LLC can do the following for its owner(s):
- hold assets (including real estate and personal property)
- run a business
- open bank accounts
- enter into contracts
- file lawsuits
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What are the advantages of forming an LLC in California?
A California LLC offers you and your business 2 major advantages: personal liability protection and pass-through taxation.
Personal liability protection means you won’t be held personally liable for your company’s debts and obligations. In the event your California LLC is sued, your personal assets cannot be used to pay off the company’s liabilities.
Pass-through taxation means your California LLC won’t have to pay taxes twice. This is one of the major drawbacks of a Corporation: it pays taxes at the corporate level and also pays taxes at the personal level.
Instead, your California LLC’s profits will “pass through” directly to your personal income tax return. You’ll only be taxed at the personal level for your business’s profits.
How to start an LLC in California?
There are 5 steps to starting your California LLC:
- Choose a Name for your LLC
- Select your LLC’s Registered Agent
- File your LLC’s Articles of Organization
- Create your LLC’s Operating Agreement
- Get your LLC’s EIN (Employer Identification Number)
The filing fees in California are $70.
And all LLCs must also pay an $800 Annual Tax.
Click here for our step-by-step guide: How to Form an LLC in California.
Can a licensed professional form an LLC in California?
Licensed professionals are not allowed to form LLCs in California. This is to prevent them from claiming personal liability protection for malpractice or negligence.
As alternatives, California does allow licensed professionals to form a Registered Limited Liability Partnership (RLLP) or Professional Corporation (PC).
Since 2019, the rules have been that only 2 professions can form an RLLP:
- Attorneys
- Public Accountants
For most other California licensed professionals, they need to form a Professional Corporation.
For more information, please see: Most California Professionals Can’t Form an LLC.
Do I need a lawyer to form an LLC in California?
No, there’s no rule that says you need a lawyer to form your California LLC. The only rule is that you form your LLC in accordance with California laws.
Forming an LLC in California is easy and takes just 5 steps. We’ve broken down the steps and you can watch our video lessons here.
How do I maintain an LLC in California?
To keep your California LLC in good standing with the state, you’ll regularly need to:
- File a Statement of Information (every 2 years)
- Pay your $800 Annual LLC Tax (every year)
- Pay your LLC’s California Taxes (every year)
If you don’t file your Statement of Information or taxes on time, the state will charge late fees. If you continue to ignore these requirements, the state will also suspend or shut down your California LLC.
For more details on how to file your Statement of Information, watch our video lesson here.
If you want to learn about your California LLC tax obligations, then check out this video lesson.
How long does it take to form an LLC in California?
The state will approve your California LLC in 3-5 business days.
Also, if you form your LLC during peak filing season (December through January), approval can take up to 6-7 business days.
You can form your California LLC online or by mail. We recommend the online filing as it’s easier. You can find instructions for both here: California LLC filing instructions.
How many people do I need to form an LLC in California?
There are no legal requirements on the number of members you can have in your LLC.
You can form an LLC in California with yourself as the only member, or you can form an LLC with multiple members.
An LLC with 1 member is called a Single-Member LLC.
An LLC with 2 or more members is called a Multi-Member LLC.
How much does it cost to start an LLC in California?
You’ll have to pay a one-time filing fee of $70 to the California Secretary of State.
Payment is made with a check or money order and should be submitted with the Articles of Organization:
You will mail your $70 fee and the CA Articles of Organization to this address:
Secretary of State
Business Entities
PO Box 944228
Sacramento, CA 94244-2280
How do I file the Annual LLC Tax for my California LLC?
You’ll need to file Form 3522, which is also known as an LLC Tax Voucher. The Annual LLC Franchise Tax is $800.
Your first payment should be made before the 15th day of the 4th month after you filed your LLC. The month you filed your LLC is counted as the first month.
Example: If you filed your California LLC in June, you must pay before September 15th.
After the first payment, the Annual LLC Franchise Tax will be due on April 15th every year.
Here are instructions and and the download link for Form 3522:
California LLC Annual Franchise Tax
Is California the best state to form my LLC?
You’ll want to form an LLC in California if:
– your business is located in California
– you live in California
– you own real property in California
If you live in California and do business in California, then yes. If not, then you’ll be better off forming an LLC in the state where you reside and/or do business.
Many people preach about the so-called “benefits” of forming an out of state LLC. They say you can save on taxes and other expenses when you form an LLC in places such as Wyoming, Nevada, and Delaware.
Reality check: you’ll actually have to spend twice the amount if you make and operate an out of state LLC (also called a foreign LLC).
Because you’ll be required to register that out-of-state LLC as a “Foreign LLC” in California, you’ll be paying:
- 2 State filing fees
- 2 Annual Report (Statement of Information) fees
- 2 Registered Agents
- 2 State Taxes
Not only that, but you’ll have the added burden of running 2 LLCs (you’d still need to register your LLC in your own state).
Again, save yourself the headache and extra costs: form an LLC in your own state.
For more information on which state is best, please watch this video.
Should I form a California LLC for real estate investing?
Yes. Many real estate investors prefer an LLC for their business because it offers them personal liability protection. A California LLC will protect your personal assets from being used to pay off the liabilities that result if your real estate business gets sued.
What are the annual fees for a California LLC?
You’ll have to pay a $20 filing fee every year you submit your Statement of Information to the state. This document keeps the state updated with your LLC’s contact details.
You’ll need to file your first Statement of Information within 90 days after the state approves your California LLC. Afterwards, you must submit it once every 2 years to keep your business in good standing.
For more details on how to file your Statement of Information, check out our video lesson.
What other fees do I need to pay to form an LLC in CA?
Aside from the one-time filing fee of $70 and the $20 for the Statement of Information, California doesn’t charge you other fees to form your LLC.
However, you’ll have to pay extra if you hire a lawyer, a tax professional, and a Commercial Registered Agent.
What taxes do I need to pay as an LLC in California?
There are 3 taxes specific to California LLCs. They are:
- Annual LLC Franchise
- TaxEstimated Fee for LLCs
- LLC Return of Income
All LLCS regardless of income must pay the Annual LLC Franchise Tax (Form 3522) and the LLC Return of Income (Form 568).
Only some LLCs must pay the Estimated Fee for LLCs (Form 3536).
The Annual LLC Franchise Tax is $800 and is filed with Form 3522.
The Annual LLC Franchise Tax is a kind of “prepay” tax. It pays for the current year.
You can download Form 3522 here:
- Visit the FTB Forms page
- Click “Online”
- Select the appropriate tax year
- Select “Limited Liability Companies”
- Click “Get Forms”
- Find Form 3522 in the list and click the link to download
The LLC Return of Income depends on your California LLC’s financial activity for a given fiscal year and is filed with Form 568. It basically reports everything your business did financially. This includes profits, losses, payment of taxes, distributions, investments, etc.
You can download Form 568 here:
- Visit the FTB Forms page
- Click “Online”
- Select the appropriate tax year
- Select “Limited Liability Companies”
- Click “Get Forms”
- Find Form 568 (and the 568 Booklet) in the list and click the links to download
Only LLCs that make $250,000 or more per year need to pay the Estimated Fee for LLCs. You will pay according to the table provided by the state:
| LLC estimated income | Fee |
|---|---|
| $0 - $249,999 | $0 |
| $250,000 - $499,999 | $900 |
| $500,000 - $999,999 | $2,500 |
| $1,000,000 - $4,999,999 | $6,000 |
| $5,000,000 or more | $11,790 |
The Estimated Fee for LLCs can be filed using Form 3536.
You can download Form 3536 here:
- Visit the FTB Forms page
- Click “Online”
- Select the appropriate tax year
- Select “Limited Liability Companies”
- Click “Get Forms”
- Find Form 3536 in the list and click the link to download
For further questions, you can also contact the California Franchise Tax Board:
Hours:
Monday – Friday, 8am – 5pm PT
Phone:
888-635-0494 Collections (option 3, option 3, option 0)
800-852-5711 Main (taxpayer service center, general questions)
Wait Times:
Wait times can be quite long if you call during the middle of the day. We recommend getting up early and calling them at 8:00am.
What’s better: a California LLC or a Corporation?
A California LLC and Corporation both have their benefits.
Both offer personal liability protection. They keep your personal assets safe from being used to pay your company’s debts.
However, a Corporation is complicated (and expensive) to run and manage. It is mainly suited for large and complex businesses that have many shareholders.
On the other hand, a California LLC is more affordable and simpler to set up. It is also easier to manage since you don’t have to hold board meetings or keep extensive records.
Again, if you have a large business with many shareholders, then form a Corporation. If not, then a California LLC might be a better option for you.
If you are unsure which is better suited for your type of business, then we recommend consulting with a CPA/accountant to determine what structure would work best for tax purposes.
What’s better: a California LLC or a Partnership?
A California LLC is definitely better than a Partnership.
In a Partnership, you and your partner’s personal assets are not safe. They can be used to pay off your company’s debts if your company falls behind on payments or gets sued.
A California LLC builds a “wall of protection” between your personal assets and the assets of your business. In case your California LLC gets sued, only the assets the LLC holds can be used to pay off its liabilities.
What’s better: a California LLC or a Sole Proprietorship?
A California LLC is preferable to a Sole Proprietorship for asset protection.
In a Sole Proprietorship, you will be held personally liable for your business’s debts. This because the law views you and your business as one and the same person.
In a California LLC, your business is viewed as a “legal person” separate and distinct from you. It can hold and own its own assets.
In case your business has to pay debts, only the assets of your business can be used. Your California LLC creditors won’t be able to go after your personal assets.
When is the best time of year to form an LLC in CA?
We recommend you form your California LLC before October, November, or December.
Remember, you must pay the Annual LLC Franchise Tax of $800 by the 15th day of the 4th month after you filed your California LLC. However, this pays for the current year only. After that, you’ll have to pay it again by April 15th of every year.
If you form your California LLC in October, November, or December, you’ll end up paying $800 twice within the span of a few months.
If your business doesn’t need to operate immediately, we suggest you wait until January the following year to form your California LLC.
For more tips on when to form your California LLC, check out our video lesson here.
Where can I get an Operating Agreement for my CA LLC?
You can download our free Operating Agreement below:
Free LLC Operating Agreement (PDF)
Free LLC Operating Agreement (Google Docs)
Free LLC Operating Agreement (Microsoft Word)
If you want more tips on how to fill out your Operating Agreement correctly, you can also watch this video.
Who can be my Registered Agent in California?
If you have a street address in California, you can choose yourself, your family member, or a friend to be your LLC’s Registered Agent.
If you don’t have a street address (or you want to retain privacy), you can instead hire a Commercial Registered Agent. In this case, we recommend Northwest Registered Agent ($125 per year).
Northwest Registered Agent has been in the business for 20 years. They have a solid reputation and excellent customer service. Their rates are affordable too (only $125 per year). You can sign up on their website or contact them with any questions:
If you want more tips on picking a Registered Agent, you can also watch our video here.
Why form an LLC in California?
A California LLC offers you personal liability protection. It builds a “wall of protection” between your personal assets and the assets held by your business.
In case your California LLC gets sued, only the assets held by your LLC can be used to pay off its liabilities. Your personal assets, on the other hand, stay safe from the debts of the company.
Where can I learn more about LLCs?
If you want to learn more about California LLCs, check out LLC University’s step-by-step videos.
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.
Can I form a LLC and transfer my properties that I have owned for a number of years into the LLC? or does this apply only to new purchases?Would appreciate your input. Thank you
Hi J, yes, an LLC can be used for new purchases or properties that are already owned.
Matt
I am running my LLC from my home office and don’t want to use it as the address of registered agent. Can I use a mail drop box that has a physical address? Its like a PO Box, but it has an actual street address and located in a package store.
This is all new to me and starting a second career after retirement. Love your site!
Hi Brian, thanks! The California statute doesn’t specifically say they are allowed, however, people regularly list mail forwarding addresses (like The UPS Store) on the California Articles of Organization for the California Registered Agent address and the Business Address. Hope that helps.