There are many benefits to forming a limited liability corporation, or LLC. An LLC is more formal than a sole proprietorship or a partnership – in which the owners want to operate a small, closely-held business – yet less formal than a corporation in which a large number of owners engage in complex business ventures.
LLCs in California cannot provide professional services – defined as any service that requires a state license.
Some of those California businesses can instead form limited liability partnerships (LLPs), while others can only be organized as sole proprietorships, general partnerships or corporations.
How to form an LLC
LLCs are tailor-made for small businesses. There are several steps when creating one. First, find a name for the business that isn’t already in use and complies with state rules. File your Articles of Organization using form LLC-1 provided by the California Secretary of State. The articles must include the LLC’s:
- Purpose (usually a broad statement of what your business hopes to accomplish)
- Names and addresses of members
- Name and address of the registered agent (must be the physical address, not a PO box, of a person in California who can receive mailed legal documents)
Although an operating agreement is not required to form an LLC in California, it’s a good idea to create a written agreement between members that outlines:
- The responsibilities, rights and voting power of the members
- How profits will be shared
- How the LLC will be managed
- When meetings will occur and how votes will be taken
- Provisions on how a member may leave the LLC through sale, disability or death
Many states require the publication of a notice in a local newspaper of the intent to form an LLC. California is not one of these states.
Within 90 days of filing the Articles of Organization, you must file the Statement of Information with the California Secretary of State’s office using form LLC-12, and then refile the Statement of Information every two years until the LLC is dissolved. The Statement of Information includes the LLC’s:
- File number in the Secretary of State’s office
- Agent’s name and address
- Executive office’s street address and (if different) mailing address
- Name and addresses of managers and CEO
- Email address if the LLC chooses to file via email rather than post
- General type of business in which the LLC is engaged
Lastly, an LLC must pay all filing fees and taxes.
While there is no shortage of LLCs in California, creating an effective LLC requires specialized skills. You can find LLC experts by contacting the State Bar of California, the Better Business Bureau or any area chambers of commerce.