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Articles of Organization
The first step in forming a California LLC is to file Articles of Organization. The current filing fee in California is $70.00 and for the do-it-yourselfers, you can download California LLC Articles of Organization from the Secretary of State.
Reserving a Name for Your California LLC
California lets you reserve a name for your limited liability company for up to 60 days prior to forming your LLC. You can apply for a California name reservation with this form: California Name Reservation Form – pdf format.
California Operating Agreement
California does not provide a “standard” Operating Agreement form. Operating Agreements are relatively complex legal documents, and therefore you should either purchase one from a reputable incorporation / formation service such as LegalZoom hire an attorney. LegalZoom will, in addition to filing your California Articles of Organization, provide the following services:
- Customized California Operating Agreement
- Preliminary check of the availability of your LLC name in Florida
- Obtaining your Federal Tax Identification (FEIN / EIN)
- Corporate resolution to open a bank account
- Membership Certificates
- Membership transfer ledger (how you keep track of who owns what shares in your LLC–for investors, partners, etc.)
California Single Member LLCs
Yes, you can have a single member LLC in California. This was permitted starting in 2000. There is no special form to file with California for forming a single member LLC–you simply form an LLC, but only have one member.
In terms of California state tax, a single member LLC is treated as a sole proprietorship, unless the LLC has elected to be taxed as a corporation.
California Form 3522 – LLC Franchise Tax
Here’s the bad news with California LLCs–the dreaded $800 annual franchise tax. It breaks down as follows:
- All LLCs classified as partnerships or disregarded entities that organize in California, register in California, or conduct business in California, must file California Form 568 Limited Liability Company Return of Income. California Form 568 must be filed by the 15th day of the fourth month after the close of the LLC’s taxable year.
- An LLC required to file Form 568 pays an annual tax of $800, and may be subject to a fee based on the LLC’s total income from all sources derived from or attributable to the state of California, with the primary being gross receipts. The annual LLC tax voucher is due by the 15th day of the fourth month of the tax year, and is paid using CA Form 3522.
- In addition, an LLC filing Form 568 that has members that are not residents of California must file the agreements of those non-resident members acknowledging that California may tax them and may collect the annual LLC tax from them, agreeing to file a California return and pay tax on the members’ share of California source income of the LLC. For any non-residents that do not sign an agreement, the LLC must pay tax on the nonresidents’ share of LLC income.
Foreign LLCs Applying to Transact Business in California
The California franchise tax is a huge disincentive to register as a foreign limited liability company in California. Once you register as a foreign LLC, you are subject to the $800 annual franchise tax. This even includes non-resident members of the LLC!
The long arm of California taxation can reach across the nation to nab LLC members whose LLC is foolish enough to apply for foreign status in California. Unless you plan on having a physical presence in California, and transacting business there (such as opening a retail location), I would advise not registering your foreign LLC in California.
If you feel you need to help fix California’s budget crisis with your tax dollars, you can register your limited liability company in California here: California Limited Liability Company registration (foreign LLCs).