You’re ready to put your business into action. Now, you just need to figure out where to start. California is home to many successful tech startups, so it makes sense why it’s an ideal location to start your online business.

In order to start without hiccups, there are a few steps you need to take. This article will lead you through the process of forming a California LLC step-by-step.

Step 1: Register Your California LLC Name

First, the name that you choose for your business is a critical part of your company’s identity. It’s important to choose one that embodies the purpose of your business and expresses what you provide, so customers will understand what you do and what you offer. Below are a few rules you must follow to ensure that your LLC name is legal and does not break any regulations.

  • It must end with the words Limited Liability Company, Limited Company or one of its abbreviations: LLC, or L.L.C. You can also shorten the word ‘Limited’ to Ltd. and ‘Company’ to Co.
  • Do not include any words in your LLC name that relate to a federal or California agency or organization. Think FBI, IRS, or California Department of Accountancy.
  • Make sure that your LLC name is unique and distinguishable from any other existing LLC name. If you are unsure whether or not the name you want to use is already taken, you can perform a business search provided by the California Secretary of State.

While you can choose any name for your LLC, as long as it’s not already taken, there are still good and bad options. Your business’s name should describe what product/service you are providing. For example, you’ll be selling socks online, a good name would be “‘Happy Feet Socks”. A not so great name would be a random culmination of words that aren’t relevant to your product, such as “Smiley Store”.

Note: In the state of California, you are able to reserve a name for your LLC for a period of up to 60 days.

Step 2: Get Your California Business Address

Next, you’ll need to get a business address for your LLC. This doesn’t seem like a big deal, but it is. You’ll be using your business address on your company website and for any paperwork or registration needs (an easy way to think of this is to imagine any public place where your business address would go). Before diving into your options, skip the idea of a PO box altogether. LLC regulations do not accept a PO box as a physical address.

So, what business address should you use instead?

Home Address - Free, But Compromises Your Privacy

Can you use your home address for your LLC? Short answer is yes, you can. Sure, using your home address may seem like the easiest option since you already have it at your disposal and don’t need to do any extra work to obtain a different address. However, using your home address can result in more harm than good.

One of the largest concerns is the privacy risk that you are vulnerable to if you choose the home address option. A business address is available to the public (i.e. your home address).

Just Google the name of any business you can think of. One of the first things you will find is the address at which that business is located. Your LLC is no exception. This means that if your home address doubles as your business address, that private information will be at the disposal of random individuals and strangers. Don’t risk your privacy and safety by using your home address as your business address. Imagine 10 angry customers banging on your door. Yikes!

Virtual Office - Get Office Amenities Without the Rent Cost

A virtual office provides a physical address and office-related services without the high overhead costs of leasing or owning an office space. It’s like getting an office space without renting the full office building. This option is a great choice for startup owners who may need office amenities (think fax, printer, coffee break room) or who need a physical conference room.

While a virtual office is cheaper than renting out a physical office space, this option is still expensive and can dent your tight budget. If you are not in need of a physical office space separate from your home and the amenities that come with a virtual office, the extra cost of a virtual office may not be worth it for you. Instead, there is a more ideal option to obtain a separate business address at a lower cost.

Virtual Mailbox - Private and Flexible Business Address

A virtual mailbox provides a permanent business address that acts as a mailing address at which you can receive mail and packages. Your mail items will be scanned and sent digitally to you, which you can view with any electronic device, much like email!

You then have the ability to request what you want to do with your mail: open and scan, forward, recycle, or shred/destroy. A virtual mailbox is the most flexible and affordable option if you don’t need a physical place to work every day away from your home. The best part - you can use the permanent address as your business address so you can protect your privacy and maintain credibility with your customers.

Ready to sign up? You can get a virtual mailbox at VirtualPostMail (VPM)!

Step 3: Assign Your California Registered Agent

Every California LLC is required to designate a registered agent. Why do you need a registered agent? They will be your point of contact for your LLC and the state of California. They act as the liaison between the Secretary of State and your LLC and are responsible for receiving service of process and other correspondence, including legal documents and tax forms, on behalf of your LLC. Because it is illegal to operate an LLC without a registered agent, if you fail to designate a California registered agent, your business may face severe consequences, including heavy fines, loss of your “good standing” status with the state, and even the dissolution of your business.

What are the Requirements to be a California Registered Agent?

There are a few criteria that must be met in order to qualify to be a registered agent. The rules are as follows:

  • Must have a physical address in the state where business is conducted (in this case California) - PO boxes do NOT count as a physical address
  • Be available to accept service of process and legal documents at all times during normal business hours.

While not a strict rule, your registered agent should also be familiar with compliance processes. Your LLC will be much better off with a registered agent service (more on this below) that is experienced in business compliance and legal proceedings.

Who Can Be Your Registered Agent?

Before deciding to designate yourself as your own registered agent, it is important that you know that California registered agents are public. Yes, that means that the name and address of the registered agent will be made available to the public for anyone to access. And the paperwork and processes for compliance too. This means that if anyone wanted to sue your LLC, all they would have to do is look up your registered agent address and then request the process for court. If the word “legal compliance” stresses you out already, you’re better off choosing a registered agent service.

So with that in mind, who can you appoint as your registered agent?

Choose a Registered Agent Service (like VirtualPostMail!)

A more ideal option is to hire a registered agent service. VirtualPostMail (VPM) offers a registered agent service that will handle your legal correspondence and provide same-day notifications of deliveries that are received. VPM’s registered agent service provides faster notifications to customers compared to traditional commercial registered agents. This can be a huge advantage when it comes to time-sensitive legal matters. Because VPM offers a high-quality virtual mailbox service that sends digital notifications to your account much like email, you will receive legal and compliance notices from your registered agent the same day they are received, which is much faster than the snail mail methods that traditional registered agents use. And the best part - VPM’s registered agent service is FREE!

This way, all of the aforementioned responsibilities will be taken care of for you, and your privacy will remain protected. You won't have to worry about missing an important compliance notification or legal document, which will ensure your business doesn’t suffer the consequences of neglecting legal responsibilities.

Step 4: File California Articles of Organization

You are required to file your Articles of Organization with the state of California to operate; you can think of it like a birth certificate for your LLC. Articles of Organization are legal documents that outline key details of your LLC, such as your company’s name, members, business address, and other information that may be required depending on the rules and regulations of your designated state. Once filed and approved by the Secretary of State, these documents act as official confirmation of your LLC’s legal existence.

How Do You File Articles of Organization?

The fastest way to file your Articles of Organization is online, but you can also choose to file via mail. Here are a few steps to help you get started:

  1. Visit the California state website to learn about the California-specific rules for filing Articles of Organization.
  2. Navigate to “file online” (if you want to choose the fastest method).
  3. Click “LLC formation” and include the following required information.

Note: There is a one-time filing fee of $70 in order to file your Articles of Organization and register your LLC.

Step 5: Create an Operating Agreement

An operating agreement acts as an instruction manual for your LLC. It is an internal document that sets the rules and regulations regarding ownership, structure, financial, and business operations of your LLC.

While most states do not require LLCs to create an operating agreement, the state of California does. The completed document does not need to be submitted to the Secretary of State. Instead, it should be kept as company records for internal use.

What Should You Include in an Operating Agreement?

There are a number of details that need to be included in an operating agreement. Important items include the name of your LLC, the business address, and the “birth date” of your LLC. For a full list of required items in your operating agreement, read this article.

Pro Tip: Much of the information provided in the operating agreement is identical to the information used in your Articles of Organization, so it will be handy to keep that on hand.

Step 6: Get an EIN Number

Make sure to file your EIN after your California LLC is processed and approved. An EIN is an employer identification number that is a unique nine-digit number assigned to businesses by the IRS. It is a permanent number assigned to your business that can be used for applying for business licenses, opening bank accounts, obtaining business loans, just to name a few.

How to File an EIN Online

If your business is headquartered in the U.S. and you have a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN), then you can apply for an EIN online, which is the best and fastest way to obtain your EIN. Simply follow the instructions from the IRS.

If you do not have a SSN or ITIN, then you must file your EIN with the SS-4 and mail or fax it in. To apply, you can print and fill out the SS-4 application form and mail it in to the appropriate IRS office.

If you are a non-US resident or foreigner without a SSN or ITIN, just write “Foreign” on the line 7b.

Need Help? Get the video course to walk through how to apply both online and fill out the SS-4 form.

Step 7: Open a Business Bank Account

The biggest reason you need a business bank account is to keep your personal and business finances separate. It’ll be much easier to file taxes when tax season rolls around, but it also protects your personal liability. Maintaining clean financial records is essential to running smooth business operations. You have your hands full with growing your company. The last thing you want to worry about is sifting through your records and spending hours trying to decipher whether an expense was business-related or personal.

An even bigger benefit to a business bank account is the protection that it provides you. Say, in the worst case scenario, that your LLC goes under and the government comes to claim your assets. As an LLC, they can only take your company assets. All items under your own personal ownership are protected. However, if you allow your business and personal finances to mingle, you are placing your personal assets in danger should an unfortunate event happen.

What Do You Need to Open a Business Bank Account?

As an LLC, there are some items that you will be required to provide in order to open a business bank account. Many of these items have been mentioned above in this article, including an EIN, business address, and registered agent, in addition to monthly credit card revenue for merchant accounts.

Many banks require proof of address before they will allow you to open a business bank account. This address needs to be a physical address with proof that it is under your name. If you do not live in the U.S. and have no address in your name, you can still open a U.S. business bank account. VPM’s TruLease plan provides you with a physical address that is backed by a lease agreement, which you can use as your proof of address.

Step 8: File a Statement of Information

Every LLC in California is required to file a Statement of Information every two years. The purpose behind this requirement is to keep your LLC’s contact information up to date with the Secretary of State. You must file your first Statement of Information within 90 days of your LLC getting approved. There is a $20 fee to file a Statement of Information, which you will need to pay every two years in order to remain in good standing with the Secretary of State. Failure to file your Statement of Information results in a penalty fee of $250. You’re better off just making sure to file on time!

How to File a Statement of Information

The California Secretary of State prefers that you file your Statement of Information online via BizFile. Follow these steps to get started:

  1. Open the BizFile site on either a Google Chrome or Internet Explorer browser
  2. Navigate to “Limited Liability Company Statement of Information”
  3. You can search for your LLC by typing in the company name or entering the entity number
  4. Once you find your LLC’s name, click it and then click “Continue Filing”
  5. Review the privacy message and accept the message to proceed

Note: If you are filing for the first time, you will need to fill in all of the blank fields with your LLC information. Similarly, if there have been changes to your LLC since the last time you filed your Statement of Information, you will need to update those fields.

Step 9: Annual Tax

The annual tax for California can be complicated, but here is a fast breakdown of the most common items and questions, plus how to file each.

How to file the $800 annual franchise tax

What is the cost of the annual franchise tax for California? You must pay the $800 annual tax by the 15th day of the fourth month after the beginning of the taxable year year. You’ll need to fill out the Limited Liability Company Tax Voucher (FTB 3522).

  • Visit the California Franchise Tax Board website, https://www.ftb.ca.gov/

  • Click “File”

  • Navigate to “Business” on the left hand side

  • Under “Business types” choose “Limited Liability Company (LLC)”

  • You’ll go down to “Annual Tax”

  • Look for Form 3522and click the download link

  • The California Secretary of State file number (from your articles of organization)

  • DBA if applicable

  • Your EIN number from the IRS

  • Then the VPM business and mailing address

  • Phone number

  • And the amount will be the $800

Note: You will have to pay a minimum of $800 each year regardless of income. There is an additional fee you will have to pay based on your sales. You can find out if you have to pay more here.

Conclusion

Forming an LLC doesn’t have to be complicated or exhausting. Once you know the basic steps you need to take and the requirements you need to fill, you will be quickly on your way to starting your own business. Then, all you need to do is check things off your checklist. LLC name? Check. Business address? Check. Employer Identification Number? Check. A virtual mailbox can make many of these steps to form your LLC a piece of cake. Ready for your own personal virtual mailbox?