How to Form a California LLC
Limited liability companies—commonly called LLCs—are the most popular business structure in California. A California LLC offers business owners the benefits of liability protection like a corporation, but LLCs have a more flexible tax structure. LLCs are also subject to fewer formalities and paperwork requirements than corporations—making the California LLC business model a good fit for many small businesses.
A California LLC must be properly formed to provide its owners (called members) the maximum protection from personal liability for the business’s contractual debts or torts.1 Completing the full formation process also lets the owners take advantage of the flexible operation and management structure that makes the LLC model attractive to so many California business owners.
When forming an LLC, it is vital to take into account the LLC laws of the state where the business will be formed. Because the laws of each state are different, a California LLC’s formation documents must be tailored specifically to California law. The California LLC formation process revolves around the careful preparation of two important formation documents: the California articles of organization and the California operating agreement.
California Articles of Organization
A California Articles of Organization is a simple form that business owners file with the California Secretary of State to officially create a California LLC.2 The articles of organization includes the basic information needed to establish the new LLC as a distinct legal entity, but it does little to customize the company’s structure to the members’ business plan.
Information Required in a California Articles of Organization
A California articles of organization includes five items with the minimal information needed to create the company:3
- Name. The articles of organization lists the LLC’s official name, which must comply with California’s naming rules.4
- Business address. The LLC must have a street address in California, and it also lists its primary mailing address (if different).
- Service of process. The articles of organization identifies the name and California address of the LLC’s agent (the equivalent of a registered agent in other states) with authority to receive legal documents for the LLC.5
- Management. The LLC states whether it will be managed by one manager, by more than one manager, or by the company’s members.6
- Purpose statement. The articles of organization states that the LLC’s purpose is “to engage in any lawful act or activity for which a limited liability company may be organized” under California LLC law.
Signing and Filing the California Articles of Organization
The person who acts on behalf of the new business to officially form the LLC is called the company’s organizer.7 The organizer signs the articles of organization for the business and is responsible for ensuring the information in the document is accurate.8 An LLC’s organizer is typically a member, manager, or lawyer representing the business, but any adult individual or business entity with capacity and authority to act for the business can be a California LLC’s organizer.9
A California LLC is officially formed and starts its existence as a distinct business entity when the articles of organization has been properly filed and accepted by the California Secretary of State. 10 The California Secretary of State accepts articles of organization filings in paper form via mail or hand-delivery, or the organizer can file online through the California Secretary of State’s website.
The ordinary filing fee for filing an LLC articles of organization in California is $70.00. The California Legislature authorized a temporary fee waiver for articles of organization filing from July 1, 2022, through June 30, 2023.
California Limited Liability Company Operating Agreement
Although the articles of organization is technically the minimum document required to legally form a California LLC, an LLC is not properly structured and tailored to the owners’ business plans unless the members also adopts a California operating agreement. A California LLC’s operating agreement is what lets the business owners customize the company’s structure and financial arrangements. An operating agreement governs important matters like:11
- Legal and financial relationships between the members and the company;
- Allocation of profits and losses and distributions to members;
- Rights and duties of members and managers;
- Conduct of the LLC’s activities and management;
- LLC mergers, conversions and domestications; and
- Rules for admission of new members, withdrawal of existing members, and transfers of membership interests.
Is an Operating Agreement Necessary for a California LLC?
An operating agreement is not mandatory under California law, but it is generally unwise for business owners to proceed with no operating agreement. California’s LLC statute includes default provisions that govern an LLC if the members neglect to create an operating agreement—or if the LLC’s operating agreement does not address a specific issue.12 The default rules are often ill-suited to an individual company and afford members less protection than a customized operating agreement.
A well-planned operating agreement lets the business owners decide for themselves how their company will be run. The wide flexibility the LLC model allows is one of its most attractive features. LLC owners who skip the operating agreement cannot take advantage of that flexibility.
Operating agreements also reduce the risk of member conflict by deciding in advance how disputes will be resolved and how members can part ways if needed. Careful planning mitigates future legal fees by establishing clear-cut rules for how future issues will be addressed.
After a California LLC is properly formed, it will have future filing requirements as it continues its existence. California requires an LLC to file a Statement of Information (which requires a $20.00 fee) within 90 days of its initial registration with the California Secretary of State and then every two year going forward.
California also charges an annual LLC tax in the minimum amount of $800.00. The initial LLC tax payment is ordinarily due to the Franchise Tax Board by the 15th day of the fourth month after the LLC is initially formed in California. The California legislature created a temporary exception that effectively waives the first-year LLC tax For California LLCs formed between January 1, 2021, and January 1, 2024.
This article discusses the documents and filings needed to properly form a California LLC. It is important to remember that an LLC may need to complete other licenses, tax filings, or registrations—depending on the nature of the business.
- See Cal. Corp. Code § 17703.04.
- Cal. Corp. Code § 17701.02(b).
- Cal. Corp. Code § 17702.01.
- See Cal. Corp. Code § 17701.08.
- Cal. Corp. Code § 17701.13.
- Cal. Corp. Code § 17703.01.
- Cal. Corp. Code § 17701.02(u).
- Cal. Corp. Code § 17702.03(a)(3).
- Cal. Corp. Code §§ 17702.01(d); 17701.02(v).
- Cal. Corp. Code § 17702.01(d).
- Cal. Corp. Code § 17701.10(a).
- Cal. Corp. Code § 17701.10(b).