How to Form an LLC in California
Research the need to form an LLC., Evaluate forming a corporation., Consider the benefits of a Limited Liability Company (LLC)., Meet with an attorney and/or a Certified Public Accountant.
Step-by-Step Guide
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Step 1: Research the need to form an LLC.
A Sole Proprietorship might be all you need if you are starting a small business and you are the only employee.
A Partnership agreement might be more appropriate if you are starting your business with a partner.A sole proprietorship is owned by one person, and there is no legal separation between the individual and the business.
All profits, losses, debts and deeds of the business would be your responsibility.
It is easy to form without needing state registration and you have complete control over the business.In a partnership, each individual partner is liable for his or her share of profits, losses, or liabilities.
However each partner is generally liable for the full debts of the partnership in the event one partner does not pay his or her share of a debt. -
Step 2: Evaluate forming a corporation.
Corporations file taxes separately from their owners.
You might be able to take advantage of a lower corporate tax rate, but it may also lead to double taxation (which occurs when your corporation's income is taxed, followed by your income from the corporation being taxed when the company pays a dividend or makes a distribution).
Incorporating is generally not appropriate for smaller businesses. , An LLC prevents other businesses from using your business name, protects you from personal liability, establishes credibility with customers, ensures the business continues if the owner dies, and provides tax savings.
You also do not have to file a separate tax return for the company.A disadvantage of an LLC is you can't pay yourself a salary and avoid paying FICA, unemployment insurance and withholding as you would in a corporation.
You also cannot deduct your salary as a business expense., Before you file to be come an LLC, it is always a good idea to meet with an attorney or CPA who specializes in starting new businesses.
He or she can review your application and your Articles of Organization before you send them in, and explain any tax benefits and recordkeeping requirements.
Note that California prevents professionals (doctors, accountants, etc.) from operating an LLC.
California also only allows limited liability partnerships (LLPs) to lawyers, architects and accountants. -
Step 3: Consider the benefits of a Limited Liability Company (LLC).
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Step 4: Meet with an attorney and/or a Certified Public Accountant.
Detailed Guide
A Sole Proprietorship might be all you need if you are starting a small business and you are the only employee.
A Partnership agreement might be more appropriate if you are starting your business with a partner.A sole proprietorship is owned by one person, and there is no legal separation between the individual and the business.
All profits, losses, debts and deeds of the business would be your responsibility.
It is easy to form without needing state registration and you have complete control over the business.In a partnership, each individual partner is liable for his or her share of profits, losses, or liabilities.
However each partner is generally liable for the full debts of the partnership in the event one partner does not pay his or her share of a debt.
Corporations file taxes separately from their owners.
You might be able to take advantage of a lower corporate tax rate, but it may also lead to double taxation (which occurs when your corporation's income is taxed, followed by your income from the corporation being taxed when the company pays a dividend or makes a distribution).
Incorporating is generally not appropriate for smaller businesses. , An LLC prevents other businesses from using your business name, protects you from personal liability, establishes credibility with customers, ensures the business continues if the owner dies, and provides tax savings.
You also do not have to file a separate tax return for the company.A disadvantage of an LLC is you can't pay yourself a salary and avoid paying FICA, unemployment insurance and withholding as you would in a corporation.
You also cannot deduct your salary as a business expense., Before you file to be come an LLC, it is always a good idea to meet with an attorney or CPA who specializes in starting new businesses.
He or she can review your application and your Articles of Organization before you send them in, and explain any tax benefits and recordkeeping requirements.
Note that California prevents professionals (doctors, accountants, etc.) from operating an LLC.
California also only allows limited liability partnerships (LLPs) to lawyers, architects and accountants.
About the Author
Cheryl Collins
Enthusiastic about teaching practical skills techniques through clear, step-by-step guides.
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