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Starting an LLC in California
A California Limited Liability Company (LLC) is a legal business structure used to protect your personal assets (home, car, bank account) in the event your company is sued.
A California LLC can be used to operate a business, or an LLC can be used to hold your assets (such as real estate, vehicles, boats, and aircraft).
Figuring out how to start an LLC in California doesn’t have to be confusing. We’ll walk you through it step-by-step.
Need to save time? Hire a company to form your LLC:
Northwest ($39 + state fee) or LegalZoom ($149 + state fee)
(check out Northwest vs LegalZoom)
1. LLC Name
The first step in the LLC formation process is to make sure your desired business name is available for use.
Your California LLC name needs to be unique among all the existing businesses registered in California.
Make sure your California business name is available by doing a business name search.
Designator
Your desired business name must end with a proper designator.
California law allows the following designators:
- LLC (most common)
- L.L.C.
- Ltd. Liability Co.
- Limited Liability Co.
- Ltd. Liability Company
- Limited Liability Company
2. California Registered Agent
When forming an LLC, you need to select a California Registered Agent, technically called an Agent for Service of Process in California.
A California Registered Agent is a person or company who agrees to receive legal documents (called “Service of Process“) on behalf of your LLC in case your business is sued.
Service of Process can include items such as a complaint, summons, and subpoena.
The Registered Agent’s address must be a street address. You can’t use a PO Box address for the California Registered Agent.
And they must be located in California.
Who can be your Registered Agent in California?
Note: As we mention in our California Registered Agent lesson, who you choose as your business’s Registered Agent will have an impact on your privacy and what addresses show up on public records.
In California, you have 3 options for who can be your LLC’s Registered Agent:
- You can be your own Registered Agent
- You can ask a friend or family member
- Or you can hire a Registered Agent Service. Hiring a Registered Agent Service is a good idea if you want to keep your address off public records or if you don’t have an address in California.
LLCU recommendation: If you want to hire a Registered Agent, we recommend Northwest Registered Agent ($125 per year).
Special offer: If you hire Northwest to form your LLC ($39 + state fee), they’ll include their Registered Agent service free for the 1st year.
(Check out our Northwest Registered Agent review to learn more)
Privacy: California includes your personal information in public records, which may appear in google searches. A nice feature of hiring Northwest is they’ll let you use their business address throughout your LLC filing (keeping your home address private). Any mail that is sent to your LLC, will be scanned by Northwest and uploaded to your online account.
3. Articles of Organization
Official California LLC form: Articles of Organization (Form LLC-1)
California LLC filing fee: $70 $0. (Good news! California LLCs are free until June 2023.)
See LLC Cost in California to learn about all the fees you’ll pay.
Filing methods: online, by mail, or walk-in
LLCU recommendation: We recommend the online filing as it’s easier to complete and the approval time is slightly faster.
Online filing: You can file your California Articles of Organization online via BizFile.
Mail filing: Prepare a check or money order for $70 and make it payable to “California Secretary of State” It’s currently free to file, so you don’t need a check. Just mail your California Articles of Organization to:
California Secretary of State
Business Entities
PO Box 944260
Sacramento, CA 94244-2600
Approval time: Once the California Secretary of State receives your filing, they’ll approve your LLC in 8 business days. If you’re forming your LLC in California during a peak filing period (December through January), approval can take a bit longer. You’ll receive an approved Articles of Organization and a Welcome Letter from the state.
Note: Filing times may take longer due to the current global situation and government delays. Please see How long does it take to get an LLC in California.
Licensed professionals: California law prohibits most businesses offering “professional services” from operating as an LLC. Please see the following page: most California licensed professionals can’t form an LLC.
Need to save time? Hire a company to form your LLC:
Northwest ($39 + state fee) or LegalZoom ($149 + state fee)
(check out Northwest vs LegalZoom)
4. LLC Operating Agreement
Your California Operating Agreement is an internal document. This means you’ll just keep a copy with your business records. It does not get sent to the California Secretary of State, or to any other agency.
Operating Agreements are where the LLC Members (LLC Owners) are listed, as well as their percentage of ownership. This document also spells out how profits and losses are distributed, how the LLC is managed, and how taxes are paid.
Both Single-member California LLCs and Multi-Member LLCs should still have an Operating Agreement.
California LLC Operating Agreement template: We provide free California LLC Operating Agreement templates that you can download here: California LLC Operating Agreement.
5. Federal Tax ID Number (EIN)
A Federal Tax ID Number, also known as a California EIN Number, is issued by the Internal Revenue Service (IRS) to LLCs.
An EIN is also called an EIN Number, FEIN, Federal Employer Identification Number, or a Federal Tax ID Number. These all mean the same thing.
It’s helpful to think of your LLC’s EIN Number as its “social security number”. It helps identify your LLC to the IRS for tax and filing purposes.
EINs are also used to open your business bank account, file income and employer taxes, and handle payroll, if applicable.
Please wait for LLC approval: Apply for your EIN only after your California LLC is approved.
Fee: $0. EINs are free from the IRS.
How to apply for an EIN
There are 3 ways to apply for an EIN for your LLC:
- If you have an SSN or ITIN, you can apply for an EIN online
- If you apply for an EIN online and you get an error message, you’ll need to apply for an EIN using Form SS-4 instead
- If you don’t have an SSN or ITIN, you can still get an EIN for your LLC: how to get an EIN without an SSN or ITIN
If you are a non-US resident or don’t have a social security number
You can’t get an EIN online. But you can still get an EIN without a social security number if you apply by mail or fax (fax has a faster approval time). Complete Form SS-4 and write “Foreign” on line 7b.
6. Initial & Ongoing Statements of Information
All LLCs in California must file an Initial Statement of Information within 90 days of the LLC being formed.
Filing methods: online, by mail, or walk-in
Statement of Information filing fee: $20
Penalty: $250 penalty if late. Eventually your LLC will be shut down by the state if you do not comply with this requirement.
Online filing: You can file your LLC Statement of Information online via BizFile.
Mail filing: Download Form LLC-12 and mail to the state (with check or money order for $20):
California Secretary of State
Statement of Information Unit
PO Box 944230
Sacramento, CA 94244-2300
Ongoing Statement of Information Filings: You need to file a Statement of Information every 2 years. They are due by the anniversary date of your LLC’s approval. For more information please see our California LLC Statement of Information instructions.
7. $800 Annual Franchise Tax & Estimated Fee
Note: Because of Assembly Bill 85, any California LLC formed between 2021 and 2024 doesn’t have to pay the $800 franchise tax for its 1st year in business. This is great news as it avoids the back-to-back franchise tax.
All California LLCs, regardless of total revenue or activity, must pay an $800 Franchise Tax fee every year.
Usually, this was due shortly after the LLC was approved. However, due to California Assembly Bill 85, LLCs formed between 2021 and 2024 no longer have to pay the $800 franchise tax for their 1st year in business.
When your franchise tax is due, you’ll be sending your payment to the California Franchise Tax Board (not the California Secretary of State).
Form 3522 (Limited Liability Company tax voucher)
The $800 Annual Franchise Tax is paid using Form 3522. This voucher changes each year, so in order to download Form 3522, please visit the Forms page on the Franchise Tax Board’s website.
Click “Online” and select the appropriate Tax Year.
Next, select “Limited Liability Companies” and click “Get Forms“. Then look for 3522 Form, “Limited Liability Company Tax Voucher“.
Due date: The $800 California LLC franchise tax is due April 15th every year (excluding the year your LLC is formed).
Form 3536 (Estimated Fee for LLCs)
If your California LLC will have over $250,000 in gross annual receipts (total revenue), you must also file and pay an Estimated Fee using Form 3536. And just like Form 3522, as mentioned above, the actual form changes each year so you’ll need to visit the Forms page on the Franchise Tax Board’s website to download the form. If your LLC will not have more than $250,000 in gross annual receipts (total revenue), then you don’t need to file Form 3536.
8. Business Licenses and/or Permits
Depending on where your California LLC is located and the industry it engages in, you may need to get certain California Business Licenses and Permits.
For example, if you sell products in California, you may need to collect sales tax and have a sales tax license (also called a Seller’s Permit).
State business license
California doesn’t require any business entity to get a state-level general business license.
Seller’s Permit
If your business sells goods or services that normally have sales tax applied in a retail store, your California LLC will need to register for sales tax. This registration is called the Seller’s Permit.
You can get a Seller’s Permit for your LLC in California online for free.
Municipal license or permit
Depending on your California LLC location and industry, you may need municipal (city, county, etc.) business licenses or permits to legally operate.
Since there are far too many cities and counties to list here, it’s best to call your local municipality for guidance.
For more information, see California Business License.
Tip: Save time by hiring an expert. We recommend using IncFile ($99) to handle the business license research for you.
9. Taxes
Federal taxes
California LLCs have “pass-through taxation”. Income or losses are usually listed on a Schedule C and filed together with your personal tax return.
California state and local taxes
Your LLC also needs to register and pay taxes with the appropriate California taxing authority. These include the California Franchise Tax Board (FTB), as well as your local municipality (city, town, county, etc.).
California Franchise Tax Board
Form 568 (“Limited Liability Company Return of Income”): All LLCs in California will need to file Form 568, as well as additional 568 Schedules and Forms with the FTB depending on how income is earned. We strongly recommend that you work with a business accountant to properly file your federal, state, and local taxes.
Form 568 changes each taxable year, so you’ll need to visit the Forms page on the FTB’s website and select the appropriate form for the taxable year in which you’re filing. Form 568 is usually due by March 15th or April 15th, but that will depend on how your LLC is treated for federal tax purposes.
LLCU recommendation: Hire a business accountant after your California LLC is formed. Read our how to find an accountant guide, or check out Thumbtack.
10. LLC Business Bank Account
Maintain personal liability protection: Opening a separate LLC bank account for your California LLC to keep your personal assets separate from your business assets is not only helpful from an asset protection strategy, it also makes bookkeeping and accounting easier.
Items needed to open an account:
- Approved California LLC Articles of Organization
- EIN Confirmation Letter
- Driver’s License
Shop around: There are many banks that charge monthly fees for LLC business checking accounts, but there are a handful that don’t. You’ll need to call a few banks in your area and shop your options.
Business debit card: The bank will give you a debit card when you open your business bank account.
Business credit card: You can also get a business credit card to earn points, miles, and other rewards.
11. Business Phone Number
Instead of using your home telephone number or your cell phone, you can purchase an affordable “virtual business number” specifically for your California LLC. You can set this virtual business phone up to forward to your cell phone, go through voice prompts, or configure it any way you’d like.
We recommend using Phone.com as they have the cheapest plans and their customer service is excellent.
They offer local phone numbers as well as 1-800 toll-free numbers. You can easily set up call forwarding, pre-recorded prompts, and get voicemail messages forwarded to your email.
Getting a separate business phone number for your LLC is also a good idea in order to keep your actual number private from those pesky “public record” websites.
California State Agencies
California Secretary of State
California Business Entities
916-653-3794 (LLC Unit)
213-897-3062 (LA Office)
8:00am – 5:00pm, M-F
California Franchise Tax Board
800-852-5711
8:00am – 5:00pm, M-F
Additional California Franchise Tax Board contact info here
Tip: Call as early as possible to avoid long hold times.
California LLC FAQs
How much does it cost to establish an LLC in California?
It normally costs $70 to start an LLC in California. This is the fee paid to the California Secretary of State for filing LLC Articles of Organization.
However, forming a California LLC is free until June 2023!
That said, you may also need to pay for municipal or industry-specific licenses and permits, or get a state-level Seller’s Permit.
While the Seller’s Permit is free, the costs for the other licenses and permits vary widely by municipality. Reach out to your local municipality if you have any questions about your LLC’s unique needs.
For a list of all LLC costs in California, please see California LLC fees.
If you have an LLC formed in another state, but you want to conduct business in California, you’ll need to register that out-of-state LLC in California. This is known as a Foreign LLC registration.
You can find Foreign LLC fees on this page: Foreign LLC fees by state.
How do I start an LLC in California myself?
You can learn how to start an LLC in California yourself by following the instructions in our California LLC Articles of Organization guide. We break down the process for you step-by-step.
How long does it take for an LLC to be approved in California?
California LLCs are approved in 8 business days, regardless of whether you file online or by mail.
However, we recommend filing online since you’ll receive your approved Articles of Organization back more quickly via email. If you file by mail, your approved documents will be sent to you via regular mail.
You can check for delays in how long does it take to get an LLC in California.
Does an LLC need a business license in California?
The state of California doesn’t require a business operating license (also called a general business license). However, there are other business licenses your LLC may need.
Most California municipalities (city, county, district, etc) require local business licenses and permits – including general and industry-specific business licenses.
For example, let’s say your LLC will be selling goods or services in California that are normally subject to sales tax when bought at a retail store. In this case, you’ll need to register for a Seller’s Permit to collect and pay that sales tax.
You can check with your local municipalities and contact the California Department of Consumer Affairs to see if you need additional business licenses.
Does an LLC pay taxes?
From a federal tax standpoint, not exactly. LLCs have what’s called “Passthrough Taxation”. This means that the tax-paying responsibilities from the LLC “pass through” to the owners.
So when it’s time to file taxes, a Single-Member LLC just needs for the owner to report their LLC income – and pay taxes on that income – using their Form 1040 personal tax return.
And Multi-Member LLCs will report their income to the IRS on Form 1065. But the owners will pay the taxes owed on that income using their 1040 personal tax return.
The exception to LLC Pass-through Taxation at the federal-level is if you elect to have your LLC taxed as a C Corporation. However, this is rare.
And the other exception is for all LLCs, at the state-level. All LLCs in California need to file Form 568 and pay taxes to the California Franchise Tax Board.
Do I need an EIN for my LLC?
Yes, you should still get an EIN for your California LLC even if you don’t hire employees.
Even though it’s called an Employer Identification Number, it doesn’t mean you as a business owner has to have employees. Again, the EIN Number is just a way for the IRS to identify your business.
Note: If you are the only owner in your business, you are not considered an employee. You are simply the owner.
What are the benefits of an LLC in California?
The first benefit of a California LLC is protecting your personal assets. Meaning, if your business is sued, your personal assets – like your home, cars, and bank accounts – are protected.
This protection applies to all LLC owners (called LLC Members). It doesn’t matter if you have a Single-Member LLC or Multi-Member LLC. All of the LLC Members are protected from the business’s debts and liabilities.
This type of protection wouldn’t apply if you operate as a Sole Proprietorship or Partnership.
With a Sole Proprietorship or Partnership, these types of informal business structures, the owners aren’t protected in the event of a lawsuit. For that reason, an LLC as a business entity is a much more common business structure than a Sole Proprietorship or Partnership.
Another benefit is LLC pass-through taxation.
This means the California LLC itself doesn’t pay federal income taxes. Instead, the profits “pass through” to the LLC Members. And the Members report and pay the taxes on their personal tax return.
To learn more, please see How are LLCs taxed.
How do I pay the $800 franchise tax?
You can pay the $800 franchise tax by mail using Form 3552 or by filing online via Web Pay of MyFTB.
Do you have to pay the $800 California LLC fee the first year 2022?
Traditionally, yes.
However, because of California Assembly Bill 85, LLCs formed between 2021 and 2024 don’t have to pay the $800 California LLC fee the first year.
Instead, your first $800 LLC fee will be paid the year after your LLC is approved. The fee is due by April 15 every year.
Do you have to pay the $800 California LLC fee the final year?
Yes, you need to pay the $800 California LLC fee the final year if you’re closing your LLC.
You have to pay any dues owed to the Franchise Tax Board before closing an LLC in California.
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.
CALIFORNIA LLC GUIDE
Follow the lessons below to form your California LLC.
Hello Matt, I want to start 2 businesses they are both different would I have to get them separate LLCs or can I put them under the same one? As well as should I get separate bank accounts for the businesses?
Hi Abel, you can run multiple business activities through one LLC (you don’t have to form two LLCs). And your LLC can open two separate LLC business bank accounts (or you could use one). So yes; that’s the simple answer. For more details, check out multiple businesses under one LLC.
Hi,
I filed and my LLC and it has been active since 12/16/22, possibly the worst time to do it from what I’m reading now.
Does that mean I will still be charged the $800 on April 15? And if so, any way to avoid that or just bad timing on my part?
Thank you
Hi Alex, wow, so close. Technically, your LLC just missed the cut off by one day for the 15-day rule to apply. So if your LLC has an initial filing date of 12/16/2022, it technically existed in the 2022 tax year (so the AB 85 exemption applied to that year). So you need to pay $800 for the 2023 tax year, and that would be due by April 15, 2023. And no, there’s no legal way to avoid it.
Thank you so much for sharing this information, I truly appreciate the work you do. I have a clarification question in regards to the California Franchise Tax Fee.
If I form my LLC in March of 2023, is it correct that I would not have to pay the $800 fee until April of 2024? Or do I need to wait until after the 2023 California Franchise Tax Fee due date of April 18 2023 to form the LLC this year? Thank you.
You’re very welcome Tara. Yes, you are correct. If you formed your LLC in March 2023 (or anytime between January 1, 2023 and December 16, 2023), you’d make your first $800 payment in April of 2024. Said another way, no, you don’t have to wait. Hope that helps!
You really are doing the lords work here. This has been so helpful for me as a new business owner to see the steps so clearly broken down. Thank you!
You’re too kind Christina! We’re happy to help. And we’re here if you have any questions along the way :)
Hi Matt, thank you for this information. I am switching from a sole proprietor to an LLC (CA). I already have a separate bank account, business credit cards, and EIN. I know (thanks to one of your articles) that I need a new EIN, but can I keep the same bank accounts? Thank you.
Hi Shannon, you’re very welcome. Generally speaking, no, you can’t keep the same bank account, because the soon-to-be LLC doesn’t own that account. However, I’d check with your bank first. Maybe they can “swap” or change the account over into the name of your LLC.
Hey Matt,
Thanks for this article, it was really helpful!
I have a question regarding using a PMB vs a home address for your CA LLC. The business I want to start will be an online retail business, so I’ll work from home, but the problem is that I rent and I won’t necessarily have a permanent home business address. I want to use a PMB as the primary address for the LLC to solve this, but when and on what documents should I use my home address vs the PMB? Can my home business address be used in a more flexible way for things like bank accounts, credit cards, etc. and use the fixed permanent physical address of the PMB for the Articles of Organization and EIN?
Thanks!
Hi Alan, you’re very welcome! Here’s what I’d do. I’d use my personal address for the EIN (and anything IRS related), bank account, and credit cards. And I’d use the PMB for the Articles of Organization, Statement of Information, and any other paperwork with the Secretary of State.
Hello,
I am starting on online business and I want to start right away. I know there’s the $800 fee but I do not want to pay twice. When is the latest I can file my LLC?
Thanks
Clarisa
I just found my answer…I dont have to pay my first year in business
Thank you,
That is correct. And it’s because of California Assembly Bill 85.
Hello Matt!
Thanks for this information! Your work is great!
I’ll plane to open LLC in California and now many registred agents don’t works with russian residents (OFAC). I have buisness in Azerbaijan and Russia and I live on two country (Russia/Azerbaijan) but who cares this. If you have a russian passport, you can’t get accounting and corporate formation services.
How to solve this problem, maybe you know? To buy real estate in CA and use this address for LLC?
As any normal personI I against this terrible, and i hope all this is finish soon…
Sorry for my bad english.
Hi Peter, the rules are in place because of U.S. sanctions, and unfortunately, I don’t know of a work-around at this time.
Good evening Matt, If I started my LLC in October 30, 2019, what annual forms are needed to be filed and when are they due in 2021.
Hi Denise, regarding the Secretary of State: I’m not sure if you filed an Initial LLC Statement of Information? That was due within 90 days of LLC approval. If you did file, it’s due again in 2021 (by Oct. 30th), and every 2 years after that. If you didn’t file the Initial Statement of Information, you can call the Secretary of State and see what the total amount owed is (there is a penalty). If you didn’t file, you owe the Initial filing and the ongoing filings every 2 years.
Regarding the Franchise Tax Board: Your LLC owes a franchise tax payment for the 2019 and 2020 tax year (with penalties and interest). Your LLC’s 2021 franchise tax payment is due April 15th, 2021.
The LLC also should have filed Form 568 (and any other applicable tax filing) in 2020 (for the 2019 tax year). The same will be owed for the 202o tax year (due by April 15th, 2021). You can contact the Franchise Tax Board for assistance and getting total balances and forms owed and/or work with an accountant. Hope that helps.
Matt, great information. Your site has been incredibly helpful in forming our LLC. Should I be concerned about any of my information being made public by applying for the EIN? I know 3rd parties will do it for a cost but free sounds better. I’m just concerned by listing my ssn as well as my address that privacy could be at risk. If we pay a 3rd party, do they still use our information? If I apply on my own, should I list the registered agent company as the address to send mail (IRS asks if mailing address should be different)? Thanks for your time and help!
Hi Scott, information provided to the IRS doesn’t go on public record. If you hire a third party (and they do it properly), they’ll be listing you as the EIN Responsible Party for the LLC and using your SSN. Either way, we recommend using whichever address is best for receiving mail from the IRS. Hope that helps :)
Hi Matt,
If I am forming an LLC with 4 partners, would I be able to go through Northwest as well ? Also, if I choose to do it myself, I am assuming all the steps you outline remain the same correct ? I looked at the MMLLC page you have I believe it is called, and it all looked like the same steps. I just wanted to make sure that I was not out of the blue missing any steps. Thank you for all the content and help !
Cheers,
Fernando
Hi Fernando, yes on both. If you are going to hire Northwest, you can complete the checkout process yourself. And if you are going to form the LLC yourself, yes, our instructions are up-to-date. You’ll be filing the California LLC Articles of Organization as the LLC Organizer. And you can sign a Statement of LLC Organizer to create really clean records. Hope that helps.
Matt,
Great site thanks for doing this I’ll be sure to Donate! I have a pretty long question so perhaps it be best if I can email you or your staff on this one but I’ll try to explain here. So long story short I have a California LLC for a virtual company for the last few years. My former CPA did not file form 568 ever nor did he do the Statement of No Charge ever he just helped form the LLC for me and then never did anything else even though I’ve been paying him all that time. Needless to say he got fired. So the State Tax Board notified me that none of the 568 forms were ever filed at all and I didn’t even find out until this very recently. In the past I had excellent CPA’s who did EVERYTHING for me I just paid them their flat fees and they took care of everything so I assumed he was doing all this for me as well and he never did nor did he even remind me to do it myself or anything. I just assumed he was taking care of everything as my former CPA’s always did. So now in 2021 I’m forming a new LLC for a different company its basically an e-commerce business and plan to keep both companies going. But since the first LLC needs some straightening out for the back previous 568 forms and such should I just dissolve that LLC and just have both companies under the new LLC? They both are virtual companies and they both are over all e-commerce right?
Also is it indeed true 2021 we no longer have to pay the $800 LLC fee for the first year? Is it only for 2021 or for any new LLC formed after 2021 for their first year?
Thank you!
Hey Doc, thank you for the kind words! Bummer to hear about that CPA, but good call on firing them.
LLC 1: Even if you were to cancel LLC 1, it would need to pay its outstanding balance and file all required forms. We recommend hiring an accountant who is very familiar with the FTB. If you google “CA FTB audit help” or “CA FTB accountant for audits”, you might find some solid people familiar with the ins and outs of the FTB. I recommend speaking to at least 4 or 5 people and asking them all the same series of questions.
Statements of Information: I recommend calling the California Secretary of State’s office (916-653-3794, LLC Unit; call early in the morning) and see if your LLC has outstanding Statements of Information. If yes, see how many are due and ask for the total amount due, including the penalty. Then get those filed. We cover that here: California LLC Statement of Information.
LLC 2: So LLC 2 may not be necessary. However, if you were to form a new LLC, the new Assembly Bill 85 impacts California LLCs with an LLC effective on or after January 1st, 2021 but before January 1st, 2024. So it’s basically running for the next 3 years. Any LLC that goes into existence at that time doesn’t have to pay the franchise tax payment for the 1st year. We’ve written specifically about it here: New law for California LLCs regarding annual franchise tax. Hope that helps!
Matt,
Thanks for your prompt response. Yes so to clarify the first LLC is a virtual travel company its parent company is a world famous brand/franchise that I own/operate. We always paid the $800 LLC fee each year but again the CPA never filed form CA LLC Form 568 for us, nor did he do the State of No Change every 2 years. So like you brilliantly pointed out we would have to settle all of those past filings and Statement of No Change every 2 years we missed. It’s only $20 every 2 years but of course as you mentioned potential late penalties as well must be settled either way.
The Tax Board seems to be rather decent and willing for us to resolve all of these matters so we will try our best to do so ASAP, but we are waiting on TurboTax on getting us the past filings from the previous years so that we can accurately fill out the 568 forms for all those years. In short they(Tax Board) gave us a temporary suspension, for again we just found out the CPA never filed anything for us at all like weeks ago. They are giving us a chance to file all the missing years form 568 and the Statements.
The actual questions on Form 568 are pretty vague and unclear what they are actually asking us? We heard if you incorrectly fill it out they will slap on additional fees and penalties. Do you guys have any help on how to properly fill out the 568 form? Also perhaps it would be beneficial to all other California LLC’s to be told that they too should file their LLC Form 568 each year as well since we learned the hard way.
The second new LLC is more so e-commerce (Amazon, Ebay, Private Label, Wholesale etc.) so some people said because this would be much different from the travel company we should make two separate LLC’s do you think we should try to combine the two still? Or just create the second LLC for the new e-commerce business? Also would it be possible to later on merge the two under one LLC should we decide to do that later?
In addition to the donation, we have thousands of social media followers for our businesses so we will also give you guys a shout out and tell everyone to go to your site for help and to use your products and services.
Thank you!
Hi Doc, thank you for the support! Form 568 is a tax return. We can’t comment on how it should be filled out. A competent accountant should be able to assist.
Please see this page: Can I have two business under 1 LLC? However, based on what you’ve shared, it sounds like separate LLCs will be best. Yes, there is such thing as a “merger”. However, it’s more complicated filing and we recommend hiring an attorney for that.
Hello, am kind of confused in regards to how my llc will be classified. If I am the only member will it be considered a disregarded entity? I am trying to see if I can file my llc here in California on my own because a business attorney wanted $800. Thanks for your reply!
Hi Grisell, the term Disregarded Entity can be confusing because it needs to be taken “one step further”. Meaning, it depends on who the single owner is. If the single owner is US tax person, then the LLC is taxed like a Sole Proprietorship. If the LLC were to be owned by another company, it would still be a Disregarded Entity, but it would be taxed like a branch/division of the parent company. Feel free to follow the “Detailed Lesson” links at the top of this page if you’d like to file the LLC yourself. And if you do, we recommend forming your California LLC in 2021 (not 2020) to take advantage of the new law: California LLCs don’t pay $800 franchise tax for the 1st year. Hope that helps.
Hi Matt, thank you very much for your informative website. It really helps.
I am planning to form a SMLLC come 2021 and I have several questions.
1. Can the “Articles of Organization” be considered as business expense? Without AoO, I cannot form LLC, thus the EIN cannot be obtained, thus I cannot have business bank account. Without paying from my business bank account, I cannot claim as business expenses right?
2. How do I (as LLC owner) pay for myself (as LLC worker) from the LLC? Do I just transfer the money from business account to my personal account?
3. How do I (as LLC owner) fund the LLC from personal bank account to business account? Do I just transfer the money?
Hi Shin, you are very welcome :)
1. Yes, the formation of the LLC (filing the Articles of Organization) is a business expense. From an accounting/bookkeeping perspective, it’s a reimbursement. Meaning, you pay for it, but your LLC claims the expense.
2. As a Single-Member LLC (taxed in its default status), you are taking what’s called a “draw” (aka owner’s draw). It can be done in a number of ways, however, at its core, it’s money going from the LLC business account to your personal account. That can be done with an online transfer, writing a check, or any other medium or tool which transfers the money.
3. The money would move in the opposite way as it does in #2. These are called capital contributions. Hope that helps!
Hi Matt,
Thank you for your reply. I was not clear with my intention of my question for #2 and #3. Let me clarify.
Not that I would like to have shady business, but the reason I want to form LLC is to have the barrier between my personal asset and what I am going to do as company (Online webservice business). If transferring money between #2 and #3 is as easy as just regular check / online transfer, when anything were to happen to my company, wouldn’t I just quickly withdraw all the money from the company and close the company?
If I withdraw my money in that kind of situation, will my personal account still be protected from liability? Is there no special book keeping that I would have to do for money transaction between my personal and company money?
Hi Shin, in the event your LLC were sued and you took all the money out, the LLC’s creditors may be able to go after you personally. This is called “piercing the corporate veil”. It would be argued in court. It’s a good idea to keep track of capital contributions and capital distributions.
Hi Matt,
I was reading the Wikipedia article regarding “piercing the corporate veil”. Seems like court would focuses on the malicious intent of the LLC owner.
Now how about a situation where malicious third party is involved?
I am trying to make a website development company. I will run my website on a platform (from Amazon Web Service lets say). The ill intended customer of mine overloads the access to my website via DDOS attack. My website’s traffic is skyrocketed for non-proper use and my platform costs becomes extremely high to the point I cannot pay Amazon.
In this case, do I only have the option to close my LLC? Will Amazon be after my personal assets in this case? Is there alternative way of resolving this so it does not become problem for my company and possibly capture the ill intended customer and make that person pay?
Hi Shin, piercing the corporate veil is a pretty complex subject matter, however, it generally would not apply if there was no fraud, wrongdoing, or injustice on your part. We’d also be assuming the LLC was treated as a separate legal entity and it was properly capitalized. However, it’s important to keep in mind that Amazon’s terms of service would also apply. The details of which we can’t comment on.
Thank you Matt!
And Yes, here is the order I am doing it in case anyone in the future can use this information or resource as well:
❖ I am a US born and raised citizen who lives in California
❖ You create a multi-member LLC in California called Becker LLC
❖ Becker LLC makes an election to be taxed as an S-Corporation, now an LLC/S
❖ You then create a Corporation in California called MB1 Inc.
❖ MB1 Inc. makes an election to be taxed as an S-Corporation, now an S-Corp
❖ Becker LLC is now the parent company and owns it’s QSSS child company MB1 Inc.
❖ Becker LLC is 100% owned by me (even though it’s a multi-member LLC setup)
❖ MB1 Inc. is 100% owned by Becker LLC
End Result:
❖ I own 100% of the multi-member LLC/S [Becker LLC] and the multi-member LLC/S owns 100% of the S-Corp [MB1 Inc.]
Filing out all the paperwork and Forms necessary today. Will report back beginning of the year with results.
Thank you again Matt!
Hi Mark, you’re very welcome. The only part that doesn’t make sense is owning 100% of a Multi-Member LLC. There is no such thing. If you own 100% of an LLC, it’s a Single-Member LLC.
Hello and Good Morning Matt!
I am so glad I found you, I really hope you can help me out with this simple Yes or No question I have stumped everyone and their kin with so far.
So for my question below, the following four statements are presented and true facts:
❖ Both my LLC and the Corporation I’m building are registered in California where my primary residence is.
❖ The LLC I’m creating will elect as S-Corp for IRS Tax Code [Form 2553] status and purposes. It will be referred to as the LLC-S below.
❖ The Corporation I’m creating will elect as S-Corp for IRS Tax Code [Form 2553] status and purposes. It will be referred to as the S-Corp below.
❖ My LLC-S, whether it be a single-member or multi-member setup, will maintain 100% of the company shares in the original owner’s hands. They will never be traded, exchanged, liquidated, sold, given away. etc. during the entire inception and future of this company as long as it’s alive. This is to maintain definitive fact and assurance that my LLC-S will always meet requirements for S elect status and be able to own other S-Corps elects, now and in the future forever.
Now, I know that if I create my LLC, as a single-member LLC-S, it can be the parent structure in this setup, and it can also be placed as the sole 100% owner of my S-Corp which it will treat as it’s child QSSS/QSST structure.
My question for you is:
Can I create my LLC, as a multi-member LLC-S, and it still be the parent structure in this setup, where it can still be placed as the sole 100% owner of my S-Corp which it will treat as it’s child QSSS/QSST structure?
Thank you so much and hope you’re having a blessed week. Cheers!
Hey Mark! Let me phrase it this way:
Right now Becker LLC has 1 owner (you). If you assign some of your LLC Membership Interest to another person (or another company), as long as that person or company qualifies as an eligible S-Corp shareholder (see S-Corp requirements), then yes, a Multi-Member LLC can still be eligible for S-Corp tax classification (whether or not it owns a QSUB).
Said another way: Yes is the answer to your question. A Multi-Member LLC (taxed as an S-Corp) can own a Corporation (taxed as an S-Corp).
Note: QSST is the incorrect abbreviation here. That stands for Qualified Subchapter S Trust. If an LLC/S-Corp Member/Shareholder were a Trust, that trust would first have to qualify with the IRS as a QSST in order to be an eligible S-Corp shareholder.
Hope that helps!
Disclaimer to others reading: Most of the language used here is tax language”. Meaning, we are looking through the “lens” of the IRS for federal income tax purposes. Depending on the state “lens” (ex: Is it the Secretary of State looking at the companies? Is it the Department of Revenue looking at the companies?), the state agency(ies) may use slightly different terminology. For example, the Secretary of State’s office doesn’t care about the S-Corp election. It’s still an LLC (or Corporation) in their eyes.
Hi Matt,
I’m so thankful for your resourcefull website. I live in California. I’m pretty new about all the taxes. My accountant said my net income after expenses 80K and he said reasonable salary I should take 30K. He said I will owe 14K federal tax and $4K for payroll tax. I was expecting guiding but he wasn’t helpful. I found out how to reduce taxes legally such as retirement plan, section 179 and renting my lease home to my s-corp. My whole purpose keeping more money and finding right oppurtunities in order to grow my company or starting new business. What can you recommend for me?
Thank you so much
Hi Oz, you’re super welcome! We don’t specialize in taxes, so we recommend speaking with an account (or a few) to go over all your options. Thank you for your understanding :)
One more question – I was looking at the NW site and they don’t seem to be asking for Future file date option. Though LLC-1 online form has one.
I would like to use NW services but do not want to file this year, instead want to have a future file date. Is it possible with NW or should I do it myself?
Thanks
Hi Neena, while Northwest doesn’t have Future File Date in their checkout flow, they should be able to accommodate you. We recommend emailing or calling them for instructions before signing up with them (if that’s what you decide). Hope that helps.
Hi Matt,
Great information! Thanks
It seems that the first year min $800 franchise tax is now waived in CA for 2021-23. Do you want to update this post with the latest info.
Also is I am filing for a “Future file date” of Jan 1, 2021 and I fill the forms now, will I be able to avail this exemption or should I wait until 2021 to even fill the forms?
Finally, with this exemption do I still have to file 3522 on the 4th month?
Thanks
Hi Neena, you are correct. The California Assembly Bill 85 amended Section 17941 of the Revenue and Taxation Code. California LLCs that go into existence between January 1st, 2021 and December 31st, 2023 are exempt from paying their first year’s $800 annual franchise tax payment. If you can, we recommend waiting until January 1st for your LLC to go into effect. You can form your California LLC now, but use “future file date” of January 1st. The LLC must be filed online to do this though. Regarding whether or not Form 3522 still needs to be filed (with a $0 payment), we’re not 100% sure yet. Our team will research it this week and we’ll follow back up here. We’ll be updating all of our California LLC pages shortly to reflects the new changes of California Assembly Bill 85. Thank you for your understanding.
Hi Neena, I’m following up on my last reply. You don’t have to file Form 3522 on the 4th month (for LLCs that go into existence in 2021). If the LLC effective date is January 1 2021, Form 3522 will be due no later than April 15 2022. Hope that helps :)
Hi Matt,
Why are there so many fees associated with setting up LLC in California? When speaking to NorthWest they said $129.00 to form LLC. What if I don’t need them to be my Registered Agent since I already have a business address to use. Thanks for all the advice. Can’t my physical, mailing, company management address be my business address?
These were the fees with NW upon finalizing
Filing Service Fee
$100.00
CA 12 Day Filing Time$90.00
Compliance Filing For CA$0.00
Registered Agent
$125.00
Order Total$315.00
Hi Minh, if helpful, there is a discounted link on this page: Northwest Registered Agent. If you don’t need them to be your Registered Agent, you can file yourself. You can follow the “Detailed Lessons” at the top of this page. Hope that helps.
Good morning, I opened an LLC in california in June 2018 i was aware of the $800 annual fee i ran past me and i have not paid it i am wanting to fine the Late fee chart and cannot seem to get anywhere do you know where i can find that? id like to take care of it as soon as possible. I understand it will be a $800 plus the late fee.
Hi Amanda, when an account is past due, you need to call the California Franchise Tax Board to get the totals and instructions. We recommend calling earlier in the morning for the shortest hold time.
Hello Matt,
I have a question:
If I file for an LLC in February would I still pay the $1600 in taxes? Seeing that the due date will be in May.
Also, I plan to purchase a vehicle and use it as a promotional by using car wraps advertising my company. Would I be able to offset the purchase of the vehicle? and some of the mileage? I plan to use it for my job also.
Hi Edward, if an LLC is approved in February 2020, the first $800 payment (paying for the year 2020) is due by May 15th 2020. Your next $800 payment (paying for the year 2021) is due by April 15th 2021. So no, in your case, you won’t have back-to-back franchise tax payments. You’ll need to speak to your accountant about the ways in which you can purchase and write off the vehicle. Taxes vary quite a bit, and it’s not something we’re able to get into. Hope that helps and thanks for your understanding.
Hi Matt, I just paid my Statement of Information for Home Health LLC. How long before the State of California visits me for the Licensing inspection?
Hi Jennifer, the LLC’s Statement of Infomration and a licensing inspection are two separate and distinct things. We don’t know about the licensing inspection part.
Hi Matt,
Thank you for all the info on your website and videos. Very informative !
We live in Colorado and plan on buying a rental property in California in partnership with family members who live outside Colorado.
Can we create a Colorado LLC and own the CA rental property in it OR do we have to register the CO LLC as foreign LLC in CA. Also, is there $800 annual franchise fee for foreign LLCs in CA.
Do all members in a LLC have to be in one State ?
Thanks in advance for the answers.
Hi Srini, no, LLC members don’t have to be in the same state. Yes, all LLCs (foreign and domestic) doing business in California owe franchise tax, in addition to other returns, if applicable. Best to speak with an accountant. It comes down to transacting business. Check out what is transacting business in California. You can look into forming a domestic LLC in California, forming a Colorado LLC and registering it as a foreign LLC, or if you’ll acquire more property as time goes on, forming a holding company, say in Wyoming for example; and that holding company owns “child” LLCs, each set up in the state where property is owned. Hope that helpful.
Hi Matt! Love your website!
My question is: I literally submitted my LLC paperwork to the secretary of state and submitted my address as the registered agent. Which I immediately regret after I submitted the form. Can I use northwest instead? Will I get charged another filing fee ?
Hey Marika! Thank you! You can try calling the Secretary of State and cancelling the filing. If that doesn’t work, you can file a Statement of Information ($20) to change the Registered Agent. Hope that helps!
Hi Matt, I am glad I found this website! I have a quick question about forming an LLC in CA. Can a Real Estate Broker form an LLC or is that considered a CA licensed professional? Please let me know at your earliest convenience.
Hi Shahob, great to hear! We have information on that here: most CA professionals can’t form an LLC. You may want to confirm this, but we’re fairly sure real estate brokers can’t operate through an LLC. Check out the corporate license instructions from the CA Department of Real Estate. See the first sentence under “Licensing a Corporation as a Real Estate Broker”. Hope that helps.
Hi, In Section 9. Taxes, it states I would need to register my LLC and pay taxes with the California Franchise Tax Board. These State taxes would not be “pass thru” like in federal? I have no business, but do have sizable assets I want to protect, and unfortunately I currently (In California) I do everything under individual sole proprietor. My question would be that now all of the cash flow would be reported twice? Once thru what I as an Individual collect and pay in state taxes and then again what the LLC will earn and pay?
Hi Manny, while the California LLC will be a pass-through entity, it still has reporting requirements with the California Franchise Tax Board. We recommend working with an accountant to make sure everything is filed properly. They can also get into a more detailed explanation with you as well. Hope that helps!
Hi Matt,
Thanks for all of the info shared here! Do you have a Manager-Managed Operating Agreement for CA?
Hi Andy, please see our California LLC Operating Agreement page. We just added new Operating Agreement templates to download, including a Manager-Managed Operating Agreement. Hope that helps!
Hello Matt,
This site is amazing. Appreciate your doing this.
My 2 sisters and I own the land of a commercial site in CA, so we receive rental income. We are looking into putting it into an LLC. We all 3 have our own separate living revocable trusts. Would the fact that we have trusts make any difference? Is there anything that we would need to do differently? When we receive our monthly payments, the checks are made out to the 3 of us, with just our names on them. (Not trust names.)
Thanks so much!
Sandi
Thank you Sandi! We don’t get too deep into Trusts yet, however, you would make the 3 Trusts the Members of a newly formed LLC and then you would title the property into the LLC. Rental payments would be made to the LLC and then distributions would be made to the separate Trusts. However, you’ll also want to speak with an estate planning/asset protection attorney regarding any pros/cons and in case there is a better way to structure things for your situation. Hope that helps.
Thank you, Matt!
Hi,
I want to change my registered agent (legal zoom) to myself. LLC was created in New York.
Do I still need to a publication in the newspaper?
Thank you,
Kenette
Hi Kenette, if you’ve already met the publication requirements in New York, then no, you don’t need to meet them again just because you make a change to the Registered Agent. Also, check out our New York Registered Agent article. You actually don’t need to list a Registered Agent in New York (SOS is Registered Agent by default) and can instead just revoke the current Registered Agent instead of appointing yourself via the Certificate of Change. Hope that helps.
Hello Matt. Thank you for taking your time to answer each question. I have found this website extremely resourceful. I was just curious because I read above that you said that when there are multiple owners in an LLC, only one person needs to be registered with IRS to get an EIN number, however, whom do I register with to make it clear that there is more than one individual in the business and to let them know the ownership percentage? Also, when filing for taxes, if there is only one EIN number, how will each owner file? For instance, if there are two owners, both with 50-50% ownership and collectively earned a net income of 100K for the year, will each owner be filing separately but claiming a net income of 50K? Any help would be greatly appreciated!
Hey Xee, you’re welcome :) Correct, there is only one EIN Responsible Party listed for the LLC. When you apply for your LLC, you list the number of Members. That’s how the IRS knows the LLC’s default tax classification. For example, 1 Member = LLC taxed as a Sole Proprietorship and 2 or more Members = LLC taxed as a Partnership. The IRS doesn’t need to know how many Members there are and what percentage each one owns, since the responsibility to properly file federal taxes falls on each individual. You will file an information return for the LLC (Form 1065 – Partnership Return). Then you/your tax professional will issue a K-1 to each Member which shows their portion of the income. Each person then includes that K-1 on their personal income tax return (Form 1040) and pays taxes accordingly. Hope that helps!
Matt your site has been so helpful for me, I thought I’d share some information that may of your readers may find useful. The state of California now does online filing. Here is the link http://www.sos.ca.gov/business-programs/bizfile/ for anyone who might need it. It’s a super easy process and takes about 5 minutes to complete.
Hi Sophia, so great to hear! Yes, we’re super excited that California finally has online LLC filing! We’ll be updating the lessons to reflect those changes.
Name of LLC vs name of website/brand
Two part question. One, does the name of the LLC have to be the name of your website/brand name. Say for example I file “Basic Name LLC” , does my website and brand name have to also be “Basic Name LLC” or can they be something completely different? Two, if I file that LLC name, do I still need to copyright/trademark that brand name or does filing an LLC under that name also copyright/trademarks it?
Great questions Dmitriy. Nope, website name and LLC name don’t have to be the same… they can be completely different. Copyright has nothing to do with forming an LLC. You (or your LLC) own the copyright to any creative work, simply by the nature of creating it. If you want to take things a step further, you (or your LLC) can register a body of work… known as copyright registration. There are state trademarks and federal trademarks. I’ll assume you’re referring to a federal trademark. A federal trademark, once registered with the United States Patent and Trademark Office, puts the public on notice that you (or your LLC) are claiming an exclusive right to a name, brand name, product, service, slogan, or logo. More info on trademarks here: trademark facts from USPTO. Trademark rights are not granted simply by forming an LLC. So to answer your question, you don’t copyright a brand name. You would file a trademark. In regards to name protection, forming an LLC in California just prevents someone else from registering the same (or similar) business name in California. Hope that helps!
Hi Matt, How are you doing?
Coming here again with questions on Taxes.
-California LLC with 2 Members need to file Federal Tax Return (Form 1065) if No Income and No Expenses was there for the whole year? Basically, my Business was completely inactive.
-Opened LLC in 2017, do I need to file BIENNIAL REPORT this year?
Hi Amit, doing well, thank you :) You’ll need to speak with an account regarding your federal, state, and local taxes. Your first Statement of Information is due within 90 days of your LLC being approved. The next Statement of Information for your LLC will be due in 2020.
Thanks Matt!
I have incorporated my LLC in MD in 2013. I have moved to CA at the end of 2016 and split my taxes between 2 states filing them in April 2017. The company was active within entire 2017 and I have realized it needs to be registered in CA to pay my taxes now. I have the federal EIN, bank accounts and need only fast registration in CA. I have a filled and signed form LLC-5 and the certificate of good standing from MD. How long it will take to get the LLC registration in CA and how much should I pay for fast regitration?
Thank you
Vadim
Hi Vadim, the California Foreign LLC Registration (Form LLC-5) costs $70. Regular approval time is approximately 10 to 15 business days (not included mail time there and back). You can overnight your documents to shave a few days off of mail time. Or if live near Sacramento (or are willing to make the trip), you can drop your documents off in person for expedited processing. There are 3 different time windows with different prices for expedited processing. You can find the details here: California Secretary of State Pre-clearance and Expedited Filing Services (look under the “Expedited Filing Services” section). As an alternative, if you have a friend who lives near the Sacramento office, you can ask them to drop off your documents and pay for expedited processing. You can also hire a courier service. They’ll charge additional fees depending on how fast you want things filed with the CA Secretary of State. Hope that helps!
HI Matt,
EXCELLENT website. Thank you very much. My question is:
I am ready to form an LLC with a partner. Our business will sell the product online for the most part, however, he lives in Alaska, and I live in California. We may have local sales as well. Where is it better to form the LLC? Can we form in just one state? Or does one of us have to register as a foreign entity in order to operate in the respective state we don’t form the LLC in?
Thank you for any insight you can provide.
-Jereme
Hey Jereme, thanks for the kind words! It sounds like you’re both doing business in both states. You’ll want to either form the LLC in California and register it as a Foreign LLC in Alaska or form the LLC in Alaska and register it as a Foreign LLC in California. Hope that helps!
Matt,
I live in CA. I am buying two commercial real estate properties, one in MS and one in MN. I understand that I need to form LLCs in those two states, but my question is do I also need to register those LLCs in CA as Foreign LLCs since I live in CA and my office is in CA and I pay my taxes in CA?
Hey Bruce, for most people they wouldn’t have to worry about this, but as a California resident you’re doing business in California as well as in Mississippi and Minnesota. You could either:
1. Form your LLCs in MS and MN and register them as Foreign LLCs in California.
2. Form your LLC in California and register it as a Foreign LLC in MS and MN.
3. Form an LLC in California owned by you (the Parent LLC) and have this CA LLC be the Member (owner) of an LLCs formed in MS and MN.
4. Form an LLC in Wyoming owned by you (the Parent LLC) and have this WY LLC be the Member (owner) of an LLCs formed in MS and MN. Then register the WY LLC as a Foreign LLC in California. Wyoming is common among real estate investors for charging order protection.
We certainly recommend speaking with legal and tax professionals to dot “i’s” and cross “t’s” and to see what’s best in your situation. Hope that helps!
You provide BY FAR the best information about LLCs anywhere on the web, and that’s saying quite a bit. THANK YOU so much for breaking things down simply, clearly, and efficiently. You deserve a reward of some sort for your efforts. Props and Kudos do you.
*to you
Jeff, you rock! Thanks for the awesome comment! I really appreciate it. Just help spread the word the next time you bump into a friend forming an LLC. That’ll do ;) Thanks again!
Hi Matt-
You are the most helpful person I have contacted in regards to LLCs/businesses.
I have already applied for my LLC in CA, but it is still not processed. Looks like they are working on Dec. 28 submissions and mine was about Jan. 3.
I did the prelim online name search and we were good to go- LLC. In talking to my CPA, we may switch to a corp soon. I will want the name to be the same but of course- INC. vs. LLC when we convert. My question is this:
Should I reserve the CORP. name or because I will have the LLC with the name will that keep other entities in CA from using that name? (I.e- “ABC LLC” and “ABC Inc”.)
Inversely, if I try to reserve the name as a corp. before my LLC is processed will that keep me from getting the LLC name?
I just want to be sure I will have my selected businesses name as an LLC and corp and want to do it in proper order. I understand I can reserve my corp name for 60 days but if I have the LLC I may not need at all TO RESERVE name as corp?
I hope you get my question. I talked to the SOS office and the dude didn’t understand at all what I was asking!
Thanks again!
Hi Samantha, thank you for the kind words! Yes, you’re correct on both fronts. First, the LLC name will be “distinguishable upon the records”, so a Corporation could not be filed with the same name. Second, there is a chance a name reservation filed before your LLC is processed could cause your LLC filing to be rejected. But to make things even easier, you won’t need to worry about either. If you decide to convert from an LLC to a Corporation, you’ll file an Articles of Incorporation (with a statement of conversion). Along with converting the business entity itself, you’ll be able to swap “Inc.” for “LLC”. You can find more info on California business conversions here: CA Secretary of State: Conversion Information. Hope that helps!
Thanks AGAIN. You are the best.
You’re welcome Samantha!
Hey Matt, I just had a couple of questions about LLC’s. I just recently bought a house in Tennessee and I live in California. I want to build my real estate portfolio and begin to have houses all across the state of Tennessee. My questions include:
1. Should I form my LLC in the state of Tennessee where my rental property is located? or should I form my LLC in the state of California where I live.
2. Ive heard that states like Nevada, Wyoming and Delaware are great states to form LLC’s. Would you recommend me forming my LLC in those states even-though I don’t live in those states or have rental properties in those states?
Heres a scenario I was thinking:
For example, I form my LLC in Wyoming. I don’t live or have property there. My real estate is in Tennessee and I live in California. Would that be the best route to go?
3. I heard also that creating an anonymity is a good thing to do to shield your assets. Do you recommend that I go this route?
if you can get back to me I would greatly appreciate it, thanks!
Hi John, great questions. For most people (not residing in California) they’d just be doing business in Tennessee, however, as a California resident, you’re doing business in both California and Tennessee. California has extremely strict rules regarding what defines doing business. Something as simple as making a phone call about your real estate is “doing business”. So you’ll want to do one of the following:
A.) Form the LLC in Tennessee then register it as a Foreign LLC in California.
B.) Form the LLC in California then register it as a Foreign LLC in Tennessee.
C.) Form an LLC in California (owned by you) and have that LLC own an LLC formed in Tennessee.
You could form a Parent LLC in Wyoming, which is common for charging order protection, but you’d still need to register that LLC as a Foreign LLC in California.
I agree, anonymity can be helpful in asset protection. However, that’s going to require a tremendous attention to detail across multiple state filings in order to pull it off. Hope that helps!
Hi Matt,
In step number 7, you mentioned that the effective date can be set to January 1st to avoid paying the franchise tax back to back. In what form or document do I mention this to the secretary of state. Thanks for your help and your instructions very informative.
Hey Paul, there’s no official form from the state (they just tell you to include an “attachment”), so we created one for our readers: Future File Date Attachment. This form can be used for those filing their California LLC later in the year (October, November, or December), but don’t need to their LLC open right away, and instead want their LLC to become effective on January 1st of the following year.
The future file date can’t be more than 90 days forward. Just include this with your Articles of Organization when you mail it to the state. The Future File Date Attachment will technically become a part of the Articles of Organization. This will help you avoid the dreaded back-to-back annual franchise tax payments ($1,600 total). Hope that helps!
For anyone else reading this, we used to have information on our website about requesting a future file date (also called delayed effective date) via the Mail Submission Cover Sheet, however, this no longer works. You’ll need to use the Future File Date Attachment or just wait until January to form your LLC.
Hi Matt – very helpful site, thanks for doing this. I’m looking at the Incfile LLC submission and submitting today is showing a 22 day hold. Would you recommend waiting another week before pushing the application through in order to avoid having to pay two $800 fees close together?
Thanks!
Hi Annie, you’re very welcome :) Yes, I’d certainly wait until January if you can. This will help you avoid back-to-back $800 annual franchise tax payments ($1,600 due within months). You could technically have your LLC approved on December 17th and you’d still be okay since California has a 15-day rule which states, if the tax year is less than 15 days, an annual franchise tax payment isn’t due for that year. Hope that helps!
If the business is earning an income (rental property), does the $800 CA FTB tax over and above taxes paid on the real estate rental income?
Hi Ali, yes, correct. The $800 California Annual Franchise Tax must be paid, regardless of business activity or income (or loss for that matter). Hope that helps.
Thanks for all the great information!
Is now still a decent time to create an LLC? The fees would be due in 4 months and 15 days if I begin now, correct?
You’re welcome Michelle! If you need your LLC open in 2018, then I’d say, yes, it’s a decent time to create your LLC. Regardless of when your California LLC is formed, your first LLC Annual Franchise Tax payment will be due the 15th day of the 4th month after your LLC is approved. So if you file this month (March 2018), you’re LLC will most likely be approved in April of 2018. The “counting system” is a bit weird in that April is considered ‘Month 1’. So your first LLC Annual Franchise Tax payment (paying for the 2018 tax year) will be due by July 15th 2018. Then next year (for the 2019 tax year), your Annual Franchise Tax payment will be due by April 15th 2019. And from there on it’ll be due by April 15th every year. Hope that helps :)
Hi Matt,
I’ve been hired by an LLC to prepare their income tax return. Their LLC was formed in California and file stamped 11/18/16. They obtained their EIN on 1/23/17. The EIN letter indicates their income tax return is due 3/15/18. I’m confused, is there a 2016 income tax return due or will 2017 be the first year to file an income tax return? There was no business activity in 2016. Thank you!
Hi Louise, I’m not 100% sure on this and recommend speaking with a tax professional as there is some discrepancy as to when the business started. The business existed for the 2016 tax year from Nov. 18th to Dec. 31. The person who obtained the EIN may have stated the business started 1/1/2017, which is not the case since the entity did exist prior to that. The 2016 tax return(s) is/were due in April 2017 if applicable. Hope you get to the bottom of it.
Hi Matt,
I currently reside in California and plan on starting a LLC soon. All of my businesses will be internet based like voice over acting, podcasts, internet radio, and short films. Is it necessary to incorporate in California or can I choose a difference state since everything I will be offering will be internet based? Ideally I want to incorporate here in California, but if it is possible to cut costs by incorporating elsewhere then I will.
Hi Jamal, although your business is internet-based (which a lot of businesses are now), you’ll likely be working from home, or somewhere from California. In that case, you are legally doing business in California, and you should form your LLC there. Forming an LLC out of state to save money will end up being much more expensive, as you’ll need to file a Foreign LLC registration in California and you’ll be paying LLC fees (and annual fees) in 2 states. We wrote more details on this here: best state to form LLC. Hope that helps!
Thanks Matt! This is helpful information!!
You’re welcome Jamal!
Hi Matt,
Great article! This is so helpful. I have a question- when is Form 568 really due? I read “Original – 15th day of the 3rd month after the taxable tax year end”
But when does the taxable year end? Meaning, if I incorporated in Jan. 2017, does that mean form 568 isn’t due until March 15, 2018?
Thanks!
Hey Jen, it depends on how your LLC is taxed with the IRS, since the California Franchise Tax Board conforms to the “check-the-box” regulations, meaning the state will tax your LLC in the same way its taxed by the IRS. Of course, if you make any tax election changes with the IRS (like LLC electing S-Corp status), you’ll need to update the FTB. The following should be confirmed with your accountant, but currently, the due dates for Form 568 are:
– Single-Member LLC taxed as Sole Proprietorship for U.S. federal tax purposes, due the 15th day of the 4th month after the taxable year end (April 15th for most)
– Multi-Member LLC taxed as Partnership for U.S. federal tax purposes, due the 15th day of the 3rd month after the taxable year end (March 15th for most)
– LLC taxed as S-Corporation for U.S. federal tax purposes, Form 568 isn’t due. Instead file Form 100S.
– LLC taxed as C-Corporation for U.S. federal tax purposes, Form 568 isn’t due. Instead file Form 100.
Also, there are more returns that need to be filed with the FTB besides Form 568, so please work with an accountant to make sure all is filed correctly. To download the instructions for Form 568, go to the Forms page on the FTB’s website. Click “Online”. Select the appropriate tax year. Select “Limited Liability Companies”. Click “Get Forms”. Then look towards the bottom for “568 Booklet”. Hope that helps!
Hello Matt, thank you for the clear guide. I’m curious about the CA form 568 ‘Date business started in CA’ line item. If I were to form an LLC, let’s say in 2014, but open for business jan of 2016 (and don’t generate any revenue before then or have costs), do I need to file a form 568 for each year or just starting in 2016, and what would be the date to fill in for ‘date business started in CA?’ Thank you, have a great day!
Hey Alex, please double-check with your accountant about this, but I’m quite certain that year should be 2014… and you owe returns (and annual franchise tax) since 2014. So if you haven’t been filing, you likely have back filings due (and possible penalties) with the California FTB. Apologies I couldn’t be more specific here, but tax questions have a lot of variation to them. Best to hire a CPA for help. We have some recommendations here. Hope that helps!
Hi Matt,
First of all your website is the most informative i have ever found. Great job on exposing the hidden lies on various uneccessary services and things that as a new business owner or developer would come across when creating an LLC.
1. My partner and I have a plan on building an e-commerce (small gift shop online). I have heard that if you create a business, you would need to hire a lawyer to do your LLC Operating Agreement so you won’t get into issues later on. Is that true? Or when do you need a lawyer when forming an LLC?
2. Say i would like to build an e-commerce (gift shop: popular books) business location would be in CA. When would you need a lawyer?
Hi Igor, thank you very much for the kind words :) I’m glad you are finding the website useful! In regards to both of your questions, there is no set rule for when to hire/speak to an attorney, however, if you’re thinking about it, I’d advise making a few phone calls to see if it’s something you need. You don’t HAVE TO hire an attorney for your LLC’s Operating Agreement, but it’s a good idea, especially if you have uncertainties, or would prefer to have an advisor to run your questions by. I recommend making a few calls and searching on Avvo: https://www.avvo.com/business-lawyer/ca.html. Hope that helps!
For SMLLC, can I use the LLC EIN on form W-9? The form asks to put member SSN, but I do not want to share that, any suggestion?
Hi Mike, for SMLLC on W9 you can use either your SSN or EIN. So if you want some privacy on the SSN part, use the EIN. Hope that helps!
Thanks Matt,
Just want to clarify, do you suggest to get another EIN for myself or the EIN that’s attached to the LLC is fine?
Thanks for setting up this site, much appreciated on all the info!
Hi Mike, apologies for the slow reply. Your comment accidentally went into the spam folder. I don’t fully understand your question and what you mean by “get another EIN for myself”. As far as the LLC goes, you just need 1 EIN for the LLC. Hope that helps.
Hi Matt,
It’s related to the W9 instruction (pg3), which seems to ask disregarded SMLLC to use only the owner’s SSN.
—
“If you are a single-member LLC that is disregarded as an entity separate from its owner (see Limited Liability Company (LLC) on this page), enter the owner’s SSN
(or EIN, if the owner has one). Do not enter the disregarded entity’s EIN.”
Hey Mike, just looked back at your prior question and I see now what you were asking. It doesn’t seem like you need an EIN for yourself, and that the LLC’s EIN is enough. You’re supposed to use the SSN on W9 for disregarded/single-member LLCs, but you don’t always have to. It depends on the company you are sending the W9 to. If you don’t mind, you can just use your SSN. If you do mind, then use the LLC’s EIN.
Hi Matt, Relating to Mike’s questions. The IRS instruction for form w-9 specifically says not to use the LLC’s EIN, instead to use a SSN or EIN. I’m confused to why it says that. Also, When apply for the EIN online, if we are a husband-wife LLC in California, we are classified as single- member LLC disregarded entity, should we apply as a sole proprietor or limited liability company? Thanks in advance and great website.
Hi Daisy, if an LLC is taxed as an Sole Proprietorship, then the IRS suggests using the individual’s SSN on Form W9, however, it’s not super important, since you’ll still be reporting the income either under the SSN or under the EIN. Regarding husband and wife LLCs in community property states (like California), if you file jointly, the default taxation by the IRS is LLC taxed as Partnership, however, there is also a special election called a “qualified joint venture” which allows a husband and wife LLC to be taxed as a Sole Proprietorship (one unit). We have more info on that here: husband wife Qualified Joint Venture LLC. Hope that helps!
Thank you Matt for the reply. We also want to know when paying FTB $800 with form 3522, what beginning and end dates should we use for the initial year if we want to be on calendar year basis? Thank you.
I found the answer to my question on the form instructions. “The first taxable year of an LLC begins when the LLC files its articles of organization with the SOS. The first taxable year of a foreign LLC doing business in California begins when the LLC is organized in another state. ” Thanks so much. the questions and answers are very helpful.
Great to hear Daisy. You’re very welcome!
Hi Daisy, you’d use 01/01/2018 to 12/31/2018 (for the 2018 tax year’s payment). Hope that helps!
Hi,
I have a question regarding “$800 Annual Franchise Tax & Estimated Fee” in CA. Do you still have to pay this even if you are a single-member LLC? I also read somewhere you can avoid paying this until you pay taxes and there’s only a small penalty fee for not paying by the deadline, any insight?
Thank you!
Brian
Hi Brian, all LLCs, regardless of the number of members (single-member LLCs and multi-member LLCs), and regardless of activity or income, must file the $800 Annual Franchise Tax and the Estimated Tax (if applicable). I’m not 100% certain about the “technique” you mention, but I would not recommend it. The California Franchise Tax Board (FTB) does impose penalties: 5% of the unpaid tax or fee, plus 0.5% on the unpaid tax or fee for each month or part of a month it remains unpaid. The maximum penalty is 25% of the unpaid tax or fee (Revenue and Tax Code Section 19132). Further, the FTB will send 2-3 reminder notices, before they eventually suspended your LLC.
FYI, in addition to the $800 Annual Franchise Tax & Estimated Fee (if applicable), you must also file Form 568 (LLC Return of Income), and any other filings that are due to the FTB based on how you derive your income. Having said that, the timing of when you form your LLC can save you money. Check out avoiding back-to-back annual franchise tax payments. Hope that helps!
Hi,
I have another question about EIN.
We are going to open an multi-member LLC where all three members are foreign nationals but 1 member has SSN and other two members do not have SSN/ITIN.
When filing for EIN, do we need to provide SSN/ITIN of ALL the members or can we just get the EIN based on one member’s SSN?
Thanks,
Mike.
Hi Mike, only one person’s information is on file with the IRS. They are referred to as the “responsible party”. You can use this person’s SSN to apply, but you don’t have to.
You can have another member (one without an SSN) be the responsible party… you just can’t get the EIN online if that’s the case. Instead, you’ll need to mail or fax Form SS-4 to the IRS and write “Foreign” on line 7b. Fax applications are much faster than mail.
In your case though, and based on your question, it sounds like having the individual with the SSN be the responsible party and obtaining the EIN online will be the easiest route. Hope that helps! Let me know if you need anything else.