Company formation laws in California

Table of contents

LLC Formation in California

Below is an outline of the steps you need for the formation of an LLC in California:

1. Choose a business name for the LLC: As per California law, an LLC name must contain either the term “limited liability company” or the abbreviation “LLC” as the last words in the name. Moreover, the name of your business must not be same as, or deceptively similar to, that of any other California LLC or any other foreign LLC allowed doing business in that state.

2. Prepare and file articles of organization with the Secretary of State: The filing fee is $70. In order to draft your articles of organization, just visit the Secretary of State’s website and fill out a simple form.

3. Negotiate and execute an operating agreement: In order to form an LLC in California, you need an operating agreement. There is no set criteria of the substance of an operating agreement though, topics usually include how meetings are conducted, how the LLC will be managed, what capital does each member is contributing, and how profits and losses will be allocated.

4. File a Statement of Information with the Secretary of State: Within 90 days of filing the articles of organization, owners of newly formed LLCs need to file a Statement of Information with the Secretary of State. Pay $20 as filing fee.

5. Obtain any required local licenses: Most local or city governments require each business to avail a basic business license, often called a tax registration certificate. To know in details about the fees and procedures to obtain one, reach out your county or city clerk’s office or other local government authority.

6. Determine the tax obligations and other necessary registrations: If there are employees or more than one member, or you want to have your single-member LLC taxed as corporation, then you need to apply for an Employment Identification Number (EIN). However, if you have employees, the LLC will have to obtain a state employer identification number or account for tax purposes.

7. Open a bank account for your business: To keep your personal transactions separate, you should open a bank account for your business’s finances. However, to open one, you would need a Tax ID number (EIN) and a copy of the articles of organization.

A list of the required documents for the formation of an LLC is located in Cal. Corp. Code § 17058.

Non-profit Corporation Formation in California

In California, public charity nonprofit corporations are termed as nonprofit public benefit corporation. Below are the steps to form a nonprofit public benefit corporation in California.

1. Choose a business name and check for availability: Your nonprofit company’s name must not be same or in any way similar to another existing corporate name on the file with the Secretary of State.

2. Recruit and/or appoint directors: You must have at least one director in your nonprofit corporation and you have to state the number of directors in either the articles of incorporation or the bylaws of your nonprofit public benefit corporation. Moreover, directors have to stay within California or have to be of a certain age.

3. Incorporate your nonprofit organization: Below is a general outline of the steps as how to incorporate your nonprofit organization:

  • Prepare and file articles of incorporation with the Secretary of State
  • Create the bylaws
  • Prepare and file a Statement of Information with the Secretary of State
  • Hold an organizational meeting
  • Create a Records Book

4. Get your Employer Identification Number (EIN): Whenever your hire an employee for your nonprofit corporation in California, you’ve to inform both the IRS and the State of California. First, request for an Employer Identification Number (EIN) from the IRS. Moreover, if you’ll pay $100 to employees in a quarter (including the president), then you’re subject to California employment taxes.

5. Register with the Office of the Attorney General: Once your nonprofit corporation starts receiving donations, you must submit the Initial Registration Form CT -1 within the next 30 days to the Registry of Charitable Trusts at the California Attorney General's Office.

6. Apply for tax exemptions: Once you’ve incorporated a nonprofit public benefit corporation, you can apply for tax exemptions. To attain tax exempt status in California, you need to file Form FTB 3500A along with the Affirmation of IRC section 501(c)(3).

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